In a Portfolio, Risk Is Evaluated in a Different Way

question 60

Multiple Choice

In a portfolio, risk is evaluated in a different way than with an individual project. In evaluating portfolio risk we

• A) need to consider the impact of a given project on the overall risk of the firm.
• B) recognize that a risky investment may create a portfolio with less risk.
• C) need to consider how the returns of the projects in the portfolio are correlated.
• D) all of the other answers are correct.

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Definitions:

Profit Margin

Profit margin is a financial metric expressed as a percentage, indicating the portion of revenue that remains as profit after all expenses are paid.

Net Cash From Operating Activity

Net cash from operating activity indicates the amount of cash a company generates from its regular business operations, after accounting for operating expenses and working capital changes.

Depreciation Expense

An accounting method used to allocate the cost of a tangible or physical asset over its useful life, reflecting the asset's consumption, wear and tear over time.

Accounts Payable

Liabilities of a company or an individual due to creditors for goods and services received but not yet paid for.