What Is the Most Likely Reason,from a Financial Liability Perspective,for

question 35

Multiple Choice

What is the most likely reason,from a financial liability perspective,for a corporation to be viewed as the most risk-aversive form of business entity?

• A) It forms a distinct legal entity,liable for its own obligations.
• B) Any entity that deals with a corporation may demand personal guarantees.
• C) It shields directors from negligent acts of management.
• D) It provides limited liability to the corporation's directors.

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Definitions:

Stand-Alone Risk

The risk associated with investing in a stock that’s held by itself, outside of a portfolio. Stand-alone risk depends on the volatility of a stock’s own return rather than on the effect its inclusion has on the volatility of the return of a portfolio.

Business Risk

The potential for loss or failure in the operation of a company, often due to external and internal factors.

Financial Assets

Assets that derive value because of a contractual claim on them, such as stocks, bonds, bank deposits, and other investments.

Non-Financial Assets

Assets that are not in the form of cash or cannot be easily converted to cash, such as property, plant, and equipment.