For each of the scenarios below, explain whether or not it represents a diversifiable or undiversifiable risk. Explain your reasoning a. It is announced that a company is under investigation from the federal government for fraudulent accounting practices.
This represents a diversifiable risk. This risk is unsystematic and is unique to the company that is under investigation. Hopefully, if this stock was part of a portfolio, the effect of this risk will be relatively small on the overall value of the portfolio.
A major terrorist attack occurs in the U.S. again.
A terrorist attack would be an undiversifiable risk. The consequences of the attack would ripple through the entire economy and would influence a large number of assets. This market risk is systematic and can't be eliminated by diversification.
c. A large increase in the price of oil.
Although this development might affect a range of stocks the risk...
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