Which of the Following Risks Is Irrelevant for the Purpose

question 22

Multiple Choice

Which of the following risks is irrelevant for the purpose of determining the risk premium of a security?

• A) Political risk
• B) Exchange rate risk
• C) Maturity risk
• D) Business risk
• E) Inflation risk

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Definitions:

Equity Method

An accounting method used to record investments in associate companies, where the investment is initially recorded at cost and adjusted according to the investor's share of the associate's net income or loss.

Equity Investment

Equity investment involves purchasing stocks or shares in a company, providing the investor with ownership interest and potentially dividends.

Cost Method

A method of accounting for equity investments representing less than 20% of the outstanding shares of the investee. The purchase is at original cost, and any gains or losses upon sale are recognized by the difference between the sale proceeds and the original cost.

Parent Company

The corporation owning all or a majority of the voting stock of the other corporation.