RISK MANAGEMENT – Midterm (50 points)

Quiz 2

I. Identify the type of RISK. Write the letter of your answer before the number (20).

A. Human F. Financial

B. Operational G. Technical

C. Reputational H. Natural

D. Procedural I. Political

E. Project J. Structural

H. 1. Weather

J. 2. Loss of Access to essential Assets

D. 3. Dangerous Chemicals

C. 4. Damage to Market Reputation

A. 5. Natural Disasters

G. 6. Poor lighting

A. 7. Illness

F. 8. Loss of Customers

A. 9. Disease

C. 10. Failures in Accountability

I. 11. Foreign Influences

A. 12. Injury

E. 13. Going over the Budget

F. 14. Interest Rate Change

H. 15. Death

F. 16. Business Failure

C. 17. Experiencing Issues with the product

G. 18. Advance in technology

F. 19. Changes in Tax

B. 20. Failure in Distribution

Expected Value (10 points each)- SHOW YOUR COMPUTATION

1. A company makes electronic gadgets. 10% in every 100 gadgets are faulty, but the
company doesn't know which ones are faulty until a buyer complains. Suppose the
company makes a ₱5,000 profit on the sale of one working gadget, but suffers a loss of
₱15,000 for every faulty gadget because they have to repair the unit. Can the company
expect a profit in the long term? (Compute for the Expected Value)
LET: P1=90% or 0.90 X1=P5,000
P2=10% or 0.10 X2= -P15,000
EV=0.90(5,000)+0.10(-P15,000)
=4500-1500
=P3,000

2. Mr. Diaz plans to invest ₱50,000 in stock market. After one year, he expects that his money
will grow to ₱80,000. But if inflation will continue to rise, he will lose all the money he invested.
Economic experts estimate that there is 15% chance that the inflation will continue to rise.
Should Mr. Diaz continue with this investment? (Compute for the Expected Value)

Let: P1=85% or 0.85 X1= P30,0000

P2=15% or 0.15 X2= -P50,000

EV= 0.85(30,000)+0.15(-50,000)

=25,500-7,500

=18,000

3. Your manager asked you to assess the viability of future development projects and select
the most promising one. According to estimates,Project A, upon completion, shows a
probability of 0.4 to achieve a value of ₱2 million and a probability of 0.6 to achieve a
value of ₱500,000. Project B shows a probability of 0.3 to be valued at ₱3 million and a
probability of 0.7 to be valued at ₱200,000 upon completion.
Project A
LET: P1=0.4 X1=P2,000,000
P2=0.6 X2=P500,000
EV=0.4(2,000,000)+0.6(500,000) =800,000+300,000 =P1,100,000
Project B
LET P1=0.3 X1=3,000,000
P2=0.7 X2=200,000
EV=0.3(3,000,000)+ 0.7(200,000)
=900,000+140,000
=1,040,000