Which of the Following Statements Is NOT CORRECT

question 124

Multiple Choice

Which of the following statements is NOT CORRECT?

• A) Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate.
• B) Accruals are "free" in the sense that no explicit interest is paid on these funds.
• C) A conservative approach to working capital management will result in most if not all permanent assets being financed with long-term capital.
• D) The risk to a firm that borrows with short-term credit is usually greater than if it borrowed using long-term debt.This added risk stems from the greater variability of interest costs on short-term debt and possible difficulties with rolling over short-term debt.
• E) Bank loans generally carry a higher interest rate than commercial paper.

Calculate expected utility and risk premia for insurance decisions in financial contexts.

Analyze the relationship between utility functions and financial decisions including investments and insurance.

Understand the role of risk aversion in insurance decisions and pricing.

Comprehend the importance and limits of diversification in managing investment risk.

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Definitions:

Payback Period

The length of time required to recover the cost of an investment, calculated by dividing the initial investment by the annual cash inflow.

Break-even Point

The juncture where the overall expenses match the total income, leading to neither a net profit nor a loss in business operations.

Base Case Level

A standard or initial set of conditions used as a reference point for financial or operational planning and analysis.

Financial Break-even

The juncture where total income matches total expenditures and costs, leading to neither a profit nor a loss.