Which one of the following is an example of systematic risk?
A) The Federal Reserve unexpectedly announces an increase in target interest rates.
B) A flood washes away a firm's warehouse.
C) A city imposes an additional one percent sales tax on all products.
D) A toymaker has to recall its top-selling toy.
E) Corn prices increase due to increased demand for alternative fuels.

Question

Quizplus · Accepted Answer

Systematic risk refers to the risk that is inherent in the entire market or economy and affects all similar types of investments. The announcement of an interest rate hike by the Federal Reserve would affect the entire market, not just an individual firm or industry. This is an example of systematic risk. The other options are examples of unsystematic or diversifiable risks, which are risks specific to an individual firm or industry.

Which One of the Following Is an Example of Systematic