Question

In: Finance

What is one way to mitigate unsystematic risks?

 What is one way to mitigate unsystematic risks?

 Focus on one risk at a time.

 Diversify the investment portfolio.

 Transfer the risk to the internal auditors. 

Convert unsystematic risk into systematic risk.

 、

 How can a spontaneous asset account be distinguished from a nonspontaneous asset account?

 A nonspontaneous asset account balance typically decreases as sales increase. 

 A spontaneous asset account balance typically increases as sales increase. 

 A nonspontaneous asset account balance typically increases as sales increase. 

 A spontaneous asset account balance typically decreases as sales increase.


 Which account type correlates with sales volume?

 Current assets

 Fixed expenses

 Nonspontaneous liabilities

 Goodwill



Solutions

Expert Solution

1)

Two kinds of risk Systematic or Market risk and non systematic or firm specific risk. While systematic risk affects the market as a whole and cannot thus be diversified, the unsystematic risk can be diversified away

Answer is Diversify the investment portfolio

2)

Spontaneous asset account change and grow in proportion to changes in sales and accmulate as a result of daily operations. Such asset account increase as sales increase

Answer is 2)

3)

Current Assets change with respect to sales volume as it is a measure of daily operations of a firm. If a sales volumt increase, the account receivables increase, the cash increase and to meet the increased sales, the inventory also increases.

Answer is Current Assets


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