Despite the High Expenses Associated with Operating Elegant Stores and Purchasing

question 71

Multiple Choice

Despite the high expenses associated with operating elegant stores and purchasing advertising space in upscale magazines, the premium retail prices that luxury goods like Louis Vuitton command translate into handsome profits. The Louis Vuitton brand alone accounts for 60% of LVMH's operating profit. On the other hand, Louis Vuitton spends $10 million annually battling:

• A)EU regulations.
• B)counterfeiters in countries such as Turkey, South Korea, & Italy.
• C)competitors in European countries.
• D)suppliers of needed materials.
• E)export freight and taxes.

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Definitions:

Nonsystematic Variance

The portion of an asset's total variance that is attributable to company-specific or industry-specific factors and can be mitigated through diversification.

Market Index

A hypothetical portfolio of investment holdings which represents a segment of the financial market, used as a benchmark to measure the performance of investments.

Active Portfolio

A portfolio of investments managed with the goal of achieving returns that exceed those of the market or specified benchmark indices through active buying and selling strategies.

Perfect Timing

Perfect timing refers to the ideal moment to buy or sell a security in order to achieve the highest possible gains based on market conditions.