Which of the following risks are unsystematic and therefore can be diversified away?
A)A lawsuit is filed against a corporation due to a faulty product.
B)The CEO is summarily replaced with another
C)Economic slowdown, causing consumers to reduce overall spending
D)All of the above
E)A and B
F)A and C

Question

Which of the following risks are unsystematic and therefore can be diversified away? ​
A)A lawsuit is filed against a corporation due to a faulty product.
B)The CEO is summarily replaced with another
C)Economic slowdown, causing consumers to reduce overall spending
D)​All of the above
E)​A and B
F)​A and C

Quizplus · Accepted Answer

Unsystematic risks, also known as specific or idiosyncratic risks, are those that are unique to a particular company or industry. Both a lawsuit filed against a corporation due to a faulty product (A) and the sudden replacement of a CEO (B) are examples of unsystematic risks because they are specific events that can affect the individual company's performance but not the market as a whole. These risks can be mitigated through diversification, which involves spreading investments across various sectors or assets. Economic slowdown (C), on the other hand, is a systematic risk because it affects the entire economy and cannot be diversified away.

Which of the Following Risks Are Unsystematic and Therefore Can