DeToya Blackburn,owner of DeTo Black Music Supplies,Inc.,has had her business up and running for just nine months.A large fire a few blocks away destroyed two small businesses and has made DeToya more concerned about the risk she endures with her own business.DeToya's inventory of musical instruments,sheet music,and repair tools for proper instrument repair could all be destroyed if a similar disaster were to occur in her own business.Due to the DeToya's reliance on the income that the shop generates and the risk associated with potential disaster,she has contacted Tom Sanders,an insurance agent,about insuring DeTo Black Music Supplies from a disaster such as fire.What type of risk would DeToya suffer if her business caught fire?

Question

Quizplus · Accepted Answer

DeToya would face a pure risk if her business caught fire because it is an unplanned and unexpected event that could result in a loss or damage to her inventory, and there is no possibility of gain. A managed risk is where the possibility of loss is known and can be reduced, such as through risk management strategies. A speculative risk involves the possibility of loss or gain, such as investing in the stock market. A shifted risk is where the risk is transferred to another party, such as through insurance.