SIE practice questionmediumRisk — Regulatory Risk
A pharmaceutical company sees its stock price drop 30% when the FDA rejects its new drug application. This is an example of:
- AInterest rate risk
- BRegulatory risk (a type of unsystematic risk)✓ Correct answer
- CInflation risk
- DSystematic risk
Explanation
Why B — Regulatory risk (a type of unsystematic risk)
This is regulatory risk — the risk that a regulatory action will affect a specific company or industry. An FDA rejection is company-specific (unsystematic) because it affects this particular company, not the entire market. Other investors holding a diversified portfolio would not be significantly impacted. Regulatory risk can be partially mitigated through diversification across industries.
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