32. Which one of the following is the best example of unsystematic risk? A. Infl

Question

32. Which one of the following is the best example of unsystematic risk? A. Inflation exceeding market expectations B. A warehouse fire C. Decrease in corporate tax rates D. Decrease in the value of the dollar E. Increase in consumer spending 33. Which one of the following is the computation of the risk premium for an individual security? E(R) is the xpected return on the security, R is the risk-free rate, ß is the security's beta, and E(Ru) is the expected rate of return on the market. A. E(R) R B. E(R) E(R) C. E(R) [E(R)+R E. B[E(R) R

Explanation / Answer

32B) A warehouse fire. This event is specific to a firm. All the other are macro specific events which will affect all the firms in the economy.

33D) ?[E(Rm)- Rf].   E(Rm)- Rf gives you the market risk premium. Multiplying the market risk premium with Beta of the stock gives you the risk premium for the stock.

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