Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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explain these two briefly
1. MANAGEMENT RISK - Decisions made by a firm's management and board of directors materially affect the risk faced by investors. Areas affected by these decisions range from product innovation and production methods (business risk) and financing (financial risk) to acquisitions.
2. FINANCIAL RISK - The firm's capital structure or sources of financing determine financial risk. If the firm is all-equity financed, any variability in operating income is passed directly to net income on an equal percentage basis.
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