Question

identify each of the following risks as most likely to be systematic risk or diversifiable risk:

a. The risk that your main production plant is shut down due to a tornado.

b. The risk that the economy slows, decreasing demand for your firm's products.

c. The risk that your best employees will be hired away.

d. The risk that the new product you expect your R&D division to produce will not materialize.

Answer 1

a. The risk that your main production plant is shut down due to a tornado.

This risk is diversifiable

b. The risk that the economy slows, decreasing demand for your firm's products.

This risk is systematic

c. The risk that your best employees will be hired away.

This risk is diversifiable

d. The risk that the new product you expect your R&D division to produce will not materialize.

This risk is diversifiable.