Question

Explain whether each of the following is systematic or unsystematic risk using references to the required...

Explain whether each of the following is systematic or unsystematic risk using references to the required background readings:

a. There is a large recession.

b. It is discovered that a company lied about its earnings and it is not nearly as profitable as they claimed.

c. The CEO of a successful company gets arrested for some serious crimes, and the company has trouble finding a good replacement.

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Answer #2
  1. The recession is a systematic risk as the whole economy is affected by it. The risk is also not diversifiable or mitigated.
  2. A company lying about its earnings is an unsystematic risk. Only the company is affected by the event and the risk can be mitigated through diversification.
  3. A company’s CEO being arrested for serious crimes and difficulty in finding a good replacement is unsystematic risk since it is a firm specific risk and the risk can also be mitigated.

I hope that was helpful :)

answered by: anonymous
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