SIE practice questioneasySystematic vs Unsystematic Risk
Which of the following is an example of systematic (market) risk?
- AA lawsuit is filed against one specific company
- BA broad recession causes the entire stock market to decline✓ Correct answer
- CA company's CEO resigns unexpectedly
- DA product recall affects a single company's stock
Explanation
Why B — A broad recession causes the entire stock market to decline
Systematic risk affects the entire market or economy and cannot be eliminated through diversification. A broad recession is a classic example. Unsystematic risk (A, C, D) is company-specific or industry-specific and CAN be reduced through diversification. Examples of systematic risk include recessions, wars, interest rate changes, and inflation.
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