1) Select one reason a company's capital structure may include more equity than debt.

• Relying too heavily on debt can increase the interest rate that a company must pay on its debt.

• Taking on more equity means that a company will be more leveraged.

• Equity has significant tax advantages that debt does not.

• Too much debt will decrease a company's volatility.

2) Which of the following is an example of a market risk for a company that manufactures automobiles?

• Being suddenly unable to source a critical component of the automobile

• A competitor that offers a similar line of cars with comparable quality at lower prices

• A failure in the company's accounts receivable process

• Damage to completed cars being transported to a buyer

3) What principle of corporate governance requires public clarification of the roles and responsibilities of board and management in order to provide stakeholders with a level of accountability?

• Integrity and ethical behavior

• Shareholder rights

• Interests of other stakeholders

• Disclosure and transparency

4) The risk that your investment will lose value because your return is dependant on the stability of a secondary investment is known as __________.

• prepayment risk

• asset-backed risk

• liquidity risk

• model risk

Answer:

1.

Select one reason a company's capital structure may include more equity than debt.

• Relying too heavily on debt can increase the interest rate that a company must pay on its debt. CORRECT
• Taking on more equity means that a company will be more leveraged. INCORRECT
• Equity has significant tax advantages that debt does not. INCORRECT, as equity doesn't have any tax advantages
• Too much debt will decrease a company's volatility. INCORRECT

2.

Which of the following is an example of a market risk for a company that manufactures automobiles?

• Being suddenly unable to source a critical component of the automobile: MARKET RISK

• A competitor that offers a similar line of cars with comparable quality at lower prices; This is a cmpetetion issue

• A failure in the company's accounts receivable process This is considered as Operational Risk

• Damage to completed cars being transported to a buyer

3.

What principle of corporate governance requires public clarification of the roles and responsibilities of board and management in order to provide stakeholders with a level of accountability?

• Integrity and ethical behavior

• Shareholder rights

• Interests of other stakeholders

• Disclosure and transparency; CORRECT; Hence, the respective Stock Exchanges and Regulatory bodies issue Listing Obligations and Disclosure Requirements for all the listed companies, which are mandatory from compliance perspective.

4.

The risk that your investment will lose value because your return is dependant on the stability of a secondary investment is known as __________.

• prepayment risk

• asset-backed risk CORRECT; The performance and risk on the investment gets impacted based on the performance and volatitlity of the risk of the other asset / investment.

• liquidity risk

• model risk