If a Firm Adopts a Large Proportion of Above-Average-Risk Projects

question 39

Multiple Choice

If a firm adopts a large proportion of above-average-risk projects that are not offset by below-average-risk projects:

• A) its cost of capital will rise.
• B) its risk premium will decline.
• C) the risk-free rate will increase as more risk is added.
• D) None of the above

---

Definitions:

Relative Homogeneity Effect

The phenomenon whereby individuals perceive out-group members as more similar to each other than in-group members, often leading to stereotypes.

East-West Differences

Refers to the cultural, philosophical, and behavioral divergences between Eastern (Asian) and Western (European and American) societies.

Superordinate Goals

Objectives that require two or more groups to work together, thereby reducing competition and increasing cooperation.

Intergroup Conflict

Tension or conflict that arises between different groups, often rooted in competition, prejudice, or differing values.