Aziz Equipment Co

question 134

Multiple Choice

Aziz Equipment Co. invests in a group of risky projects, which increases the unsystematic risk of the firm, but does not change the systematic risk of the firm. All else the same, the expected risk premium on its common stock is most likely to:

• A) Increase, because the difference between the expected return on the firm's stock and the risk-free rate will widen.
• B) Decrease, because the difference between the expected return on the firm's stock and the risk-free rate will narrow.
• C) Remain unchanged, because the level of systematic risk is unchanged.
• D) Increase or decrease, depending on the internal rate of return of the new projects.
• E) Decrease, because the difference between the expected return on the firm's stock and the risk-free rate will widen.

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Definitions:

Method of Exclusion

A strategy used to prevent certain groups or individuals from accessing a service, market, or opportunity.

Right-to-Work Laws

Legislation that guarantees workers the right to work for any employer without the requirement to join a union or pay union dues.

Union Shops

Workplaces where employment is conditional on maintaining membership in a labor union, typically after a probationary period.

Open Shops

Workplaces where joining a union is not a condition for employment, allowing for both union and non-union employees.