What Does "Risk Shifting" Imply

question 75

Multiple Choice

What does "risk shifting" imply?

• A)When faced with bankruptcy, managers tend to invest in high-risk, high-return projects.
• B)When faced with bankruptcy, managers do not invest more equity capital.
• C)When faced with bankruptcy, managers may make accounting changes to conceal the true extent of the problem.
• D)When faced with bankruptcy, managers invest in low risk projects to conserve capital.

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Definitions:

Producer Price Index

An economic indicator that measures the average change over time in the selling prices received by domestic producers for their output.

Basket Of Goods

A fixed set of consumer products and services valued on a regular basis for the purpose of tracking inflation through the consumer price index (CPI).

Firms

Businesses or economic entities engaged in commercial, industrial, or professional activities.

Substitution Bias

The distortion in calculating inflation that occurs when consumers switch their spending from higher-priced goods to lower-priced alternatives.