Which of the following risk(s) is (are) diversifiable?Select one or more alternatives:The risk that short-term interest rates increase unexpectedly.The risk that an oil tanker ruptures, creating a large oil spill.The risk of global pandemic.The risk that is going to rain tomorrow.
Question
Which of the following risk(s) is (are) diversifiable?Select one or more alternatives:The risk that short-term interest rates increase unexpectedly.The risk that an oil tanker ruptures, creating a large oil spill.The risk of global pandemic.The risk that is going to rain tomorrow.
Solution
The risks that are diversifiable are those that are unique to a specific company or industry, also known as unsystematic risks. These risks can be reduced through diversification, i.e., by investing in a variety of assets, industries, or sectors.
-
The risk that short-term interest rates increase unexpectedly: This is a market risk, which is non-diversifiable. It affects all companies and industries, not just one.
-
The risk that an oil tanker ruptures, creating a large oil spill: This is a diversifiable risk. It is specific to the oil industry or a particular company within that industry. By investing in a variety of industries, this risk can be reduced.
-
The risk of a global pandemic: This is a non-diversifiable risk. A global pandemic affects all industries and companies, not just one.
-
The risk that it is going to rain tomorrow: This is a diversifiable risk. It may affect certain businesses (like outdoor events or agriculture), but not all. By investing in a variety of industries, this risk can be reduced.
So, the diversifiable risks from the options provided are: The risk that an oil tanker ruptures, creating a large oil spill and the risk that it is going to rain tomorrow.
Similar Questions
An example of diversifiable risk that a financial manager should ignore when analyzing a project's risk would include:Group of answer choicescommodity price changes.risks of government non-approval of the project.labor costsoverall stock price fluctuations.
Diversifiable risk is also referred to asA. systematic risk, unique risk.B. systematic risk, market risk.C. unique risk, market risk.D. unique risk, firm-specific risk.E. none of the above.
Investors can eliminate what type of risk by diversifying?a.Total riskb.Unsystematic riskc.Beta riskd.Systematic risk
Diversifying an investment portfolio allows the reduction of unsystematic risk to a minimum.This Statment Is True OR FLSE
Which level of diversification would help you minimize your risk MOST:BasicIntermediateAdvancedExplain your thinking.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.