Ch.1,2,3 HW Answers

Ch.1,2,3 HW Answers - FIN381-A Ch. 1-3 Homework Chapter 1...

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FIN381-A Ch. 1-3 Homework Chapter 1 2. A) This example would be explained as speculative risk and fundamental risk. Speculative risk occurs when profit or loss is possible. In this case, terrorists could come or they could not. No one can predict what will happen. Fundamental risk affects many people and the country as a whole. Since the Department of Homeland Security is a form of the United States government and they are informing many people about the issue of terrorist attacks, this would be described as fundamental risk. Burden risk on society because of worry and fear of terrorists is also present. B) Fire damage to one’s home would be considered particular risk because it is only affecting an individual rather than society. This example is also a property risk because the individual’s home is their property and was at risk of the fire. They experienced a direct financial loss because of the fire. If a house was severely damaged by fire, this would also be considered pure risk because there was a loss. C) A family head becoming disabled because of a plant explosion is classified under particular risk as well as personal risk. Personal risks directly affect an individual. This case would be classified under the risk of poor health because the individual would have to pay extreme medical bills as a result of the catastrophe and the risk of unemployment because he will not be able to work in the future as a result of the accident. This is also considered pure risk because the individual was harmed and there was a defined loss. D) A person buying 100 shares of Microsoft or any stock for that matter is engaging in speculative risk. The stock market is uncertain and no one can perfectly predict the way the market will behave. The risk this person is taking is also classified as particular risk because it is only affecting him and not society as a whole. Other in society may also be investing in Microsoft, but his investment does affect the entire economy. E) A river periodically overflowing is considered fundamental risk because it effecting many people and their homes where the flood could occur. As a result of the flood, many people’s homes could be destroyed resulting in property risk. Also, if people do not have a
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stable home to live in and are unable to work normally, this results in the personal risk of unemployment because a person may not be able to get to their job on-time and do the same quality of work as a result of the flood. F)
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This homework help was uploaded on 04/08/2008 for the course FIN 381 taught by Professor Knowles during the Spring '08 term at Bryant.

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Ch.1,2,3 HW Answers - FIN381-A Ch. 1-3 Homework Chapter 1...

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