Question

How does a change in the mix of business impact the market's evaluation of a company's riskiness?

a.

It reduces the demand for higher returns from shareholders.

b.

It has no effect on the market's evaluation of riskiness.

c.

It increases the risk discount rate required by shareholders.

d.

It leads to a decrease in the overall market risk premium.

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (c).It increases the risk discount rate required by shareholders. Explanation:A change in the mix of business, particularly towards new and innovative contracts, alters the perception of a company's riskiness in the market. This change results in an increased demand for higher returns from shareholders, leading to a higher risk discount rate being required to satisfy this demand.

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Q. How does a change in the mix of business impact the market's evaluation of a company's riskiness?
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