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Subject: Investment analysis and portfolio management If a company is facing a lawsuit prior to a court verdict the outcome is uncertain so the investment in the company is risky. What kind of risk is...

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Subject: Investment analysis and portfolio management

If a company is facing a lawsuit prior to a court verdict the outcome is uncertain so the investment in the company is risky. What kind of risk is that? Would investors be rewarded for taking on such risk?


Answered Same Day Jul 15, 2021

Solution

Tanmoy answered on Jul 15 2021
150 Votes
Investment Analysis and Portfolio Management
If a company is facing a lawsuit prior to court verdict the outcome is uncertain so the investment in the company is risky. Such risk is called contingent liability. A contingent liability is a type of financial obligation or event which might or might not occur in future for the organization. As per US GAAP, contingent liability is a potential expenditure of the company in the future which might happen due to a triggering event to convert it into an actual loss. There are three types of contingent...
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