Quiz 3 Take Home

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Austin Peay State University *

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4500

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Finance

Date

Jan 9, 2024

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docx

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2

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Name: Destinee Pierce AGRI 4500: Take Home Quiz 3 Decision making under risk. Found in D2l’s Content “Chapter 15 slides” Module I. Using your farm plan project and class notes as reference: a. Identify possible sources of risk in your farm plan. Production and technical risk Price and market risk Financial risk Legal risk Personal risk b. Identify possible outcomes that can occur from risky event(s) Weather, illness, pests, and other external variables all have an impact on the amount and quality of goods produced. There’s uncertainty regarding the pricing at which producers will obtain goods or pay for inputs. Financial risk arises when the business borrows money and incurs a debt obligation. Rising interest rates, the possibility of lenders calling loans, and limited credit availability are all components of financial risk. Uncertainty about government policies causes institutional risk. Tax laws, chemical usage regulations, animal waste disposal guidelines, and the amount of price or income support subsidies are examples of government choices that may have a significant influence on the farm sector. Human health issues or personal connections can have an impact on the agricultural company. Personal crises that might compromise a farm company include accidents, illness, death, and divorce. c. List the strategies that you can apply to mitigate the risk. Reduce the variability of possible outcomes. Set a minimum income or price level. Maintain flexibility of decision making Contracting Hedging Insurance Household off-farm employment or investment II. Producers vary greatly in their willingness to take risks and in their abilities to survive. List five factors discussed in class that influence the amount of risk producers are willing to bear a. Age b. Equity c. Financial commitment d. Past financial experiences e. The size of potential gains or losses
Name: Destinee Pierce III. List the five key decision rules discussed in class a. Most likely outcome b. Maximum expected value c. Risk and returns comparison d. Safety first e. Break-even probability IV. List the seven production risk tools discussed in class a. Stable enterprises b. Diversification c. Insurance d. Extra production capacity e. Share leases f. Custom farming and feeding g. Input procurement V. List the four tools to help mitigate market risks a. Reduce the variability of possible outcomes b. Set a minimum income or price level c. Maintain flexibility of decision making d. Improve the risk-bearing ability of the business
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