1. How we measure risk is related to our perspective. The president of the company would look at the correlation between projects which is measured by the correlation coefficient. The well-diversified shareholder would look at what measure of risk? While the project proponent would look at the standard deviation.
2. Assume that most investors put together a well-diversified portfolio, and managers manage in the interest of the well-diversified shareholder. Should the manager be more interested in the diversifiable risk or non-diversifiable risk a project brings to the company? And which of these two does Beta measure?
3. What does it mean to be risk-averse?
4. For the same project, which break-even sales level is usually higher, the net present value breakeven or the income breakeven? Pick one
5. Where in reality would you see the risk-seeking behavior?
6. Decision trees force managers to conduct contingency planning, why is this important in measuring and managing risk?
7. Three methods for developing probability estimates (not decision models) were discussed, what are they, and which of these is most common in practice?
8. The ability to delay investment is a well-used risk management tool. How does this relate to using sequential investing to reduce risk?
9. In simulations does the computer or the modeler supply the probabilities for the different model input variables?
10. Would the breakeven point increase or decrease if the variable costs move from 45% to 40% of sales (all else constant)?