Diversification That Reduces Unsystematic Risk Is Likely to Be Associated

question 12

Multiple Choice

Diversification that reduces unsystematic risk is likely to be associated with less variance of a firm's cash flows.This is likely to benefit:

• A)Shareholders,because they are sensitive to all forms of risk
• B)Bondholders,because greater variability of cash flows increases a firm's vulnerability to default on payments to bondholders
• C)Both groups
• D)Neither group

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Definitions:

Terrified

To be in a state of extreme fear.

Faint

A sudden and brief loss of consciousness, often due to a decrease in blood flow to the brain.

Phobias

Persistent, irrational fears of specific objects, activities, or situations that lead to a desire to avoid them.

Persistent

Enduring over a prolonged period; continuing to exist or occur, especially in spite of difficulty or opposition.