Question

which one of the following best exemplifies unsystematic risk? multiple choice expected increase in tax rates unexpected increase in the variable costs for a firm unexpected increase in interest rates unexpected economic collapse sudden decrease in inflation

Answer 1

An unexpected increase in variable costs for a firm best exemplifies unsystematic risk as it pertains to specific circumstances affecting that company, rather than the market as a whole. The correct answer of choice is variable costs for a firm.

Step-by-step explanation:

The unsystematic risk refers to the risk that affects a very small number of assets, or an individual asset, and is associated with factors that are unique to the particular company or industry.

An unexpected increase in the variable costs for a firm best exemplifies unsystematic risk because this type of cost increase would not be correlated with the market as a whole but with specific circumstances of the company or its industry.

For example, if a company's supplier were to suddenly increase prices, it would directly impact the company's cost structure and potentially its stock price, while leaving other companies unaffected.