1.1.2a Risk and reward in business activity Quiz: Pearson Edexcel Business, Unit 1

The 20 questions

1. Which of these is an example of financial risk for a business?

   • Gaining independence because the owner can set their own working hours
   • Losing money because the stock it bought does not sell
   • Receiving a profit because more customers came in during the summer
   • Gaining personal satisfaction because the product is very popular with buyers

2. Which of these is a reward from running a business?

   • Lack of security because the owner's income is not guaranteed each month
   • Independence from having control over the firm's day-to-day decisions
   • Business failure leading to the closure of the firm after a poor year
   • Financial loss from a period of trading with costs higher than revenue

3. What does 'lack of security' mean as a risk of starting a business?

   • The owner must always pay a fixed salary to every member of the staff team
   • The owner's income is not guaranteed and may fall or stop altogether
   • The owner must give shares in the business to an outside investor each year
   • The owner's income is guaranteed each month regardless of how the business trades

4. Which of these is best described as a reward of running a successful business?

   • Overdraft, which is borrowing from the bank for a short period of time
   • Business failure, which means the firm has to stop trading completely
   • Financial loss, which occurs when the costs of trading exceed the revenue
   • Profit, which is the money left after all the costs have been paid

5. A sole trader spends savings on stock. Sales are poor and the stock is wasted. Which risk has occurred?

   • Financial loss, because the savings spent on stock were not recovered
   • Business success, because the owner has now started trading successfully
   • Independence, because the owner now controls the firm's decisions alone
   • Profit, because the owner now keeps all the money earned from the sales

6. Ayesha invests £20,000 in a business, which then fails. If none of the money is recovered, how much has she lost?

   • £10,000, because half of the investment is usually returned to the owner
   • £2,000, because only one tenth of the money invested is normally lost
   • £0, because the investment is always returned to the owner when a business closes
   • £20,000, because the full amount she invested has been lost

7. Why might an owner accept the risk of starting a business?

   • Because it means the owner never has to make any decisions about the firm
   • Because it guarantees a fixed salary for the owner each month of the year
   • Because it may bring rewards such as profit and independence
   • Because it removes all the financial risk from the owner's personal savings

8. Which statement correctly links risk and reward in business?

   • Higher risk always leads to a smaller reward for the owner of the business
   • Risk and reward are unrelated, so the owner can safely ignore both of them
   • Reward is guaranteed once a business has been registered with the government
   • Higher risk can be accepted in the hope of a greater reward

9. Which of these is a risk, rather than a reward, for an owner?

   • Business success, which can bring growth and a rising income for the owner
   • Business failure, which may mean losing the business completely
   • Profit, which is the surplus left over after all the costs have been paid
   • Independence, which lets the owner make the key decisions about the firm

10. Mo opens a food van. Which reward could he gain if the van is successful?

    • Business failure if customers stop coming to the van for good
    • Lack of security if the van's income falls below its costs each month
    • Financial loss from a summer with very little trade at all
    • Profit from regular sales to a loyal group of customers

11. Which of these best describes business failure?

    • When a business stops trading, usually because it cannot pay its bills
    • When a business is awarded a government grant for a new development project
    • When a business hires more employees for the busy season each year
    • When a business earns more revenue than it expected in its first year of trading

12. A firm chooses between a safe product with small rewards and a new risky product with large possible rewards. What does the risk-reward principle suggest?

    • Neither product should be chosen because every business decision carries no risk
    • The new product may be chosen if the owner is willing to accept the higher risk
    • The new product must be chosen because it will certainly bring more profit
    • The safe product must always be chosen because risk has no benefit at all

13. Which of these describes independence as a business reward?

    • The owner receives a fixed monthly wage set by a larger company they work for
    • The owner can make decisions without answering to a boss or a board of shareholders
    • The owner must share all decisions with an outside board of directors each month
    • The owner has no control over the way the firm is run on a daily basis

14. Which statement about financial loss is correct?

    • It is a reward that shows the business has become more secure over time
    • It only happens to businesses that have been trading for many years already
    • It happens when a business's revenue is greater than its costs over a period
    • It happens when a business's costs are greater than its revenue over a period

15. A café loses £3,000 in a year because customers stop coming after a new café opens nearby. Which risk has it experienced?

    • Financial loss from lower sales than its costs
    • Business success, because a rival has opened nearby and raised the area's profile
    • Independence, because the owner now chooses the menu without any outside help
    • Profit, because the café keeps its best customers despite the new rival nearby

16. Which factor would most reduce the financial risk of starting a small business?

    • Borrowing as much money as possible to buy the largest premises available
    • Spending the whole of the owner's savings on stock before the business opens
    • Testing customer demand with a small trial before spending large sums
    • Ignoring market research so that the launch can take place more quickly

17. Which of these is a personal reward that an owner may value?

    • Financial loss that comes from unexpected repair bills in the workshop
    • Lack of security because the owner's income varies each month of the year
    • Personal satisfaction from building a product they believe in
    • Business failure, which forces the owner to close the business for good

18. Why does lack of security matter for a sole trader?

    • They receive a salary from the business regardless of how much revenue it earns
    • They cannot be personally liable for any debts that the business might incur
    • Their income is guaranteed by a government scheme for all new businesses
    • Their personal income depends directly on how well the business trades

19. Which is an example of a business taking a risk?

    • Keeping the same prices as last year with no changes at all
    • Paying wages to staff on the day they are due each month as normal
    • Renting an office on a fixed-term agreement that has already been agreed
    • Launching a new product that might not sell well in the market

20. A business owner says: 'The bigger the possible reward, the more risk I may need to accept.' Which concept does this illustrate?

    • The link between risk and reward in business activity
    • The difference between cash and profit in a business's accounts
    • The purpose of market segmentation when competing in a crowded market
    • The role of an entrepreneur in organising the resources of a firm

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