Which of the Following Is NOT Generally Correct About fiNancial

question 91

Multiple Choice

Which of the following is NOT generally correct about financial engineering?

• A) Financial engineering is frequently used to hedge risk.
• B) Financial engineering uses available financial instruments to create new securities.
• C) The investments created by financial engineers are often riskier than the underlying securities.
• D) In a world where prices are stable, there would be little demand for financial engineering.
• E) Financial engineering is not a growth industry because the world is becoming less risky.

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Definitions:

Goodwill

An immaterial asset generated when a company is purchased at a price exceeding the fair market value of its clear net assets.

Equity Method

A method of accounting in which an investor recognizes its share of the profits and losses of an investee company in its own profit and loss statement, proportional to the investor's share of equity in the investee.

Diluted Earnings Per Share

A metric that calculates a company’s earnings per share considering all potentially convertible securities.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock and usually receives dividends before common shareholders.