David, Mark Laurence C.

FINMA April 11, 2024

B - 212

Questions:

13-2. Discuss the concept of risk and how it might be measured.

- The concept of risk is defined by terms of possible results of uncertain events or
outcomes from an input. The risk can also be measured by how affected something is
due to the negative results.

13-4. Explain how the concept of risk can be incorporated into the capital budgeting process.
- Capital budgeting is the process through which a firm selects a long-term investment
project through extensive procedures. The concept of risk can be incorporated to this
through seeing multiple alternatives, and ultimately choosing the one that offers the least
risks possible.

13-8. Explain the effect of the risk-return trade-off on the market value of common stock.
- The risk-return trade-off affects the market value of common stock in a way that, if a
stock's risk is too high for the potential reward, investors might not want to invest as
much, lowering the common stock's market value. This also is applicable vice versa, by
investors willing to pay more for the stock if the potential reward is worth the risk.

13-9. What is the purpose of using simulation analysis?

- Simulation analysis aids in making better decisions for oneself or in firms. It plays out
repetition of the same random process as many as several hundred times in order to
figure out which outcome will be the most optimal alternative.