Question

T

7. A company faces two kinds of risk. A firm-specifi
risk is that a competitor might enter its market and
take some of its customers. A market risk is that the
economy might enter a recession, reducing sales.
Which of these two risks would more likely cause the
company's shareholders to demand a higher return?
Why?

Answer 1

The risk of recession will most likely cause the company's shareholders to demand a higher return.

Step-by-step explanation:

If the company loses some customers, more might be attracted to the company. However, if the prices drop, the price might stay low and cause the financial value of stock to drop. Once the stock drops, the entire company loses money along with their stock, which is determined by their profit and loss.