The Business Risk of a Firm

question 333

Multiple Choice

The business risk of a firm:

• A) Depends on the level of unsystematic risk associated with the assets of the firm.
• B) Is inversely related to the required return on the firm's assets.
• C) Is dependent upon the relative weights of the debt and equity used to finance the firm.
• D) Has a positive relationship with the cost of equity for that firm.
• E) Has no relationship with the required return on a firm's assets according to M&M Proposition II.

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Definitions:

Significant Influence

The power to participate in the financial and operating policy decisions of another entity, without having control over those policies.

Investment Account

A type of account held at a financial institution that holds securities, cash, and other assets in the name of the investor.

Shares Sold

Refers to the number of shares of stock that have been bought and sold by investors over a given period, indicating trading activity and liquidity.