In Order to Evaluate Risk, Management May Also Set Qualitative

question 43

Multiple Choice

In order to evaluate risk, management may also set qualitative risk classes. Rank these four projects from least risky to most risky, all other things being equal.
1) Completely new market in United States.
2) Completely new market in South America.
3) Addition to normal product line.
4) Repair to old machinery.

• A) 4, 3, 1, 2
• B) 1, 2, 3, 4
• C) 3, 4, 1, 2
• D) 4, 3, 2, 1

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Definitions:

Loan

A sum of money that is borrowed, which must be paid back with interest, typically used for significant purchases, investing, or to cover cash flow shortfalls.

Balloon Loan

A type of loan that has low, fixed monthly payments for a period of time, followed by a large payment for the remaining amount due at the end of the term.

Amortized

Refers to the process of paying off debt over time in regular installments of interest and principal sufficient to repay the loan in full by its maturity date.

Principal

The original amount of money loaned or invested, separate from the interest or earnings it accrues over time.