🧩 Chapter 13: Risk Analysis — Mock Questions

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Q1. Risk in equity analysis primarily refers to:

A. Chance of dividend decrease
B. Uncertainty in return outcomes
C. Daily price fluctuations
D. Increase in debt

Answer: B
✔ Risk = variability of returns, not just loss.

Q2. Beta measures:

A. Business risk
B. Systematic risk relative to market
C. Credit risk
D. Liquidity risk

Answer: B
✔ Beta compares stock volatility vs market.

Q3. A beta of 1.5 indicates the stock:

A. Moves same as market
B. Moves 50% less than market
C. Moves 50% more than market
D. Is risk-free

Answer: C
✔ Stock is more volatile than overall market.

Q4. The risk that cannot be diversified away is:

A. Unsystematic risk
B. Business-specific risk
C. Industry risk
D. Systematic risk

Answer: D
✔ Systematic = market-wide, cannot be diversified.

Q5. Credit risk arises from:

A. Market volatility
B. Failure of borrower to repay obligations
C. Rising stock price
D. Declining inflation

Answer: B
✔ Credit risk = default risk.

Q6. Operational risk includes:

A. Process failures, fraud, technology issues
B. Market risk
C. Liquidity shortage only
D. Currency movement

Answer: A
✔ Internal processes, systems, or people cause operational risk.

Q7. A company’s liquidity risk increases when it has:

A. High cash balance
B. High current ratio
C. High short-term liabilities
D. Excess equity capital

Answer: C
✔ Large short-term obligations → liquidity stress.

Q8. Margin of safety lowers risk by:

A. Buying at or above intrinsic value
B. Buying significantly below intrinsic value
C. Buying only high beta stocks
D. Ignoring cash flows

Answer: B
✔ Bigger discount to fair value reduces downside risk.

Q9. Country risk includes:

A. Only currency movement
B. Political, economic, regulatory instability
C. Promoter behavior
D. Debt-to-equity ratio

Answer: B
✔ Country risk = macro-level uncertainties.

Q10. Interest rate risk mainly affects companies that have:

A. Zero debt
B. Floating-rate borrowings
C. High cash reserves
D. Fixed assets only

Answer: B
✔ Floating-rate loans → interest cost rises when rates rise.

Q11. A company dependent on a single product faces:

A. Concentration risk
B. Liquidity risk
C. Credit risk
D. Systematic risk only

Answer: A
✔ High dependence = high concentration risk.

Q12. Regulatory risk increases when:

A. Company operates in an unregulated sector
B. Government policies change frequently
C. Inflation is steady
D. Competition decreases

Answer: B
✔ Changing rules create uncertainty.

Q13. High working capital requirements increase:

A. Credit & liquidity risk
B. Dividend payout
C. Moat strength
D. Tax benefits

Answer: A
✔ More working capital = more borrowing = more risk.

Q14. A diversified portfolio reduces:

A. Systematic risk
B. Unsystematic risk
C. Beta
D. Country risk

Answer: B
✔ Diversification reduces company-specific risk only.

Q15. If a stock has low downside volatility and stable earnings, it likely has:

A. High risk
B. Low risk
C. No risk
D. Increased credit default

Answer: B
✔ Stability = lower investment risk.

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