Which of the Following Statements Is FALSE

question 9

Multiple Choice

Which of the following statements is FALSE?

• A)Firms generally do not possess better information than outside investors regarding the risk of future commodity price changes,nor can they influence that risk through their actions.
• B)Cash flows are exchanged on a monthly basis,rather than waiting until the end of the contract,through a procedure called marking to market.
• C)The firm may speculate by entering into contracts that do not offset its actual risks.
• D)When a firm authorizes managers to trade contracts to hedge,it opens the door to the possibility of speculation.

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Definitions:

Common Stocks

Equity securities representing ownership shares in a corporation, giving holders voting rights and a claim on profits.

Risk-Free Rate

The theoretical return on an investment with no risk of financial loss, typically represented by the yield on government securities.

Required Return

Required return is the minimum expected return by investors for investing in a stock, bond, or another security, considering its risk.

Expected Market Return

The average return anticipated from an investment in the broader market, serving as a benchmark for evaluating investment performance.