Match each type of non-systematic risk to the investor scenario that best illustrates it.
- Financial RiskA corporation with a high debt-to-equity ratio faces insolvency when cash flows decrease during an industry downturn.
- Business RiskA manufacturing firm suffers an earnings decline following a major product recall caused by poor quality control.
- Credit RiskA municipal bond issuer has its debt downgraded after failing to remit a scheduled semi-annual interest payment on time.
- Call RiskAn investor holding fixed-income debt has their bonds redeemed early by the issuer when prevailing interest rates decline.
Cevap
Financial Risk matches the scenario involving a high debt-to-equity ratio and insolvency risk; Business Risk matches the scenario of product recalls and operational failures; Credit Risk matches the failure to make a scheduled interest payment; Call Risk matches the early redemption of bonds by the issuer in a falling interest rate environment.
Each type of non-systematic risk is matched correctly based on its distinct source: Financial Risk arises from capital structure leverage; Business Risk arises from operational failures; Credit Risk arises from failing to meet debt service obligations; and Call Risk arises from early debt retirement by the issuer during declining interest rate environments.
Adım Adım Çözüm
Anahtar Kavram
Non-Systematic Risks and Credit Risk Characteristics