Match each type of non-systematic risk to the scenario that best illustrates it.
- Business RiskA manufacturing firm experiences severe financial loss due to poor operational decisions and product defects.
- Credit RiskA corporate bond issuer defaults on its scheduled interest and principal obligations due to financial distress.
- Liquidity RiskAn investor faces difficulty selling an unlisted municipal bond quickly at market value without taking a steep price cut.
- Legislative RiskA sudden change in federal environmental statutes significantly increases compliance expenses for an energy company.
Answer
Business Risk matches with operational and product failure losses; Credit Risk matches with bond debt default; Liquidity Risk matches with difficulty selling a bond quickly without price concessions; Legislative Risk matches with increased expenses due to new statutory regulations.
Each non-systematic risk is accurately paired with its company-specific driver: Business Risk with operational failure, Credit Risk with debt default, Liquidity Risk with secondary market illiquidity, and Legislative Risk with statutory law changes.
Step-by-Step Solution
Key Concept
Classification of Unsystematic (Non-Systematic) Risks
Estimated Time:1m 0s