CFA Level 1

AAA

Corporate Finance - Types of Risk

Like anything, projects do have risks. There are three types of project risks associated with capital budgeting:

1. Stand-Alone Risk
This risk assumes the project a company intends to pursue is a single asset that is separate from the company's other assets. It is measured by the variability of the single project alone. Stand-alone risk does not take into account how the risk of a single asset will affect the overall corporate risk.

2. Corporate Risk
This risk assumes the project a company intends to pursue is not a single asset but incorporated with a company's other assets. As such, the risk of a project could be diversified away by the company's other assets. It is measured by the potential impact a project may have on the company's earnings.

3. Market Risk
This looks at the risk of a project through the eyes of the stockholder. It looks at the project not only from a company's perspective, but from the stockholder's overall portfolio. It is measured by the effect the project may have on the company's beta.

Risk-Analysis Techniques
Related Articles
  1. Top 6 Ways To Recession-Proof Your Job
    Personal Finance

    Top 6 Ways To Recession-Proof Your Job

  2. A Guide To Financial Designations
    Personal Finance

    A Guide To Financial Designations

  3. The Claritas Investment Certificate: ...
    Professionals

    The Claritas Investment Certificate: ...

  4. 10 Steps To A Career In Hedge Funds
    Professionals

    10 Steps To A Career In Hedge Funds

  5. Study Does Not End After The CFA
    Professionals

    Study Does Not End After The CFA

Trading Center