Question $2($Mandatory$)(5$ points$)$

Which of the following statements is correct?

A$)$ Before launching into the use of derivatives to reduce profit fluctuations,

entrepreneurs should check whether this activity decreases the total risk of

their business and determine which kind of activities should be diversified.

B$)$ The necessary condition for risk management is the concavity of the profit

function due to increasing returns on investments.

C$)$ With a concave profit function, risk management decreases the firm value.

D$)$ The concavity of profit function of the firm may be induced by financial

market imperfections such as taxes or higher external financing costs than

those of internal financing.

E$)$ None of the above.