Which of the Following Is Not True About Derivatives

question 52

Multiple Choice

Which of the following is not true about derivatives?

• A) Large losses on derivative investments have been reported in the press.
• B) Derivatives are so named because their value is derived from some underlying measure.
• C) Derivatives are useful instruments for managing risk.
• D) Accounting for derivatives is fully resolved and no additional rules or interpretations are likely.

Analyze the impact of operating leverage on a firm's earnings and risk.

Explain the role of debt financing and its impact on firm valuation and cost of capital.

Understand the concept of break-even analysis in financial decision-making.

Recognize the implications of bankruptcy risk on capital structure decisions.