Inventory Levels Increase by 10% at Your Company During the Fourth

question 186

Multiple Choice

Inventory levels increase by 10% at your company during the fourth quarter.Based on this increase,which of the following statements must be correct?

• A)This must be good news because inventories are an asset to the company.
• B)This could be good news if the company is ordering more goods because sales appear to be rising.
• C)This could be bad news if the company is ordering more goods because unit costs are falling.
• D)This must be bad news because higher inventories mean higher costs.

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Definitions:

Fat Tails

Refers to the occurrences of extreme movements in stock prices or higher than normal risks in investments, which lead to heavy tails in a probability distribution.

Kurtosis

Measure of the fatness of the tails of a probability distribution. Indicates probability of observing extreme high or low values.

Skewness

A measure of the asymmetry of the probability distribution of a real-valued random variable about its mean.

Tail Risk

Risk of extreme events in the far tail of the probability distribution.