Explain the following statement: “The stand-alone risk of an individual corporate project may be quite high, but viewed in the con- text of its effect on stockholders’ risk, the project’s true risk may not be very large.”

IMPLICATIONS FOR CORPORATE
MANAGERS AND INVESTORS

The connection between risk and return is an important

Explain the following statement: “The stand-alone risk of an individual corporate project may be quite high, but viewed in the con- text of its effect on stockholders’ risk, the project’s true risk may not be very large.”

How does the correlation between returns on a project and returns on the firm’s other assets affect the project’s risk?

What are some important concepts for individual investors to consider when evaluating the risk and returns of various investments?