nayizhenfeng

The correct answer is A

The goal of ERM is to optimize (not eliminate) total risk by trading off the expected returns from taking risks with the expected costs of financial distress, where financial distress is defined as circumstances where the firm must forego positive NPV projects. Optimizing this tradeoff maximizes firm value.

nayizhenfeng

3、The primary function of corporate risk management is to:

A) optimize the level of a firm’s nondiversifiable risk.
 
B) minimize diversifiable risk. 
 
C) protect the company’s strategic plan.
 
D) reduce the likelihood of a hostile takeover.

nayizhenfeng

The correct answer is C

The primary function of risk management is to protect the company’s strategic plan by choosing a total risk level that trades off the benefits of risk taking and the expected costs of the underinvestment problem.