Which of the following best describes the risk contained in an initial public offering for a new stock?

Which of the following best describes the risk contained in an initial public offering for a new stock?
A . Residual risk.
B . Net risk.
C . Inherent risk.
D . Underlying risk.

View Answer

Answer: C

Explanation:

In the context of an initial public offering (IPO), the best description of the risk involved is "inherent risk." Inherent risk refers to the exposure inherent in the company’s operations or industry without considering the effectiveness of any risk management measures. An IPO’s inherent risks include market volatility, investor sentiment, regulatory changes, and economic factors that could affect the offering’s success.

Reference: Financial risk management literature and common usage in financial audits.