Question

1. Classify this news event as Systematic or Unsystematic and indicate whether prices will increase or decrease.

US home construction drops 30.2% in April as virus rages.

		Systematic, Increase
		Systematic, Decrease
		Unsystematic, Increase
		Unsystematic, Decrease

2. Classify this news event as Systematic or Unsystematic and indicate whether prices will increase or decrease.

Home Depot's sales soared in the first quarter, despite an increase in costs due to the coronavirus.

		Systematic, Increase
		Systematic, Decrease
		Unsystematic, Increase
		Unsystematic, Decrease

3. Classify this news event as Systematic or Unsystematic and indicate whether prices will increase or decrease.

Walmart says it will discontinue Jet, which it acquired for $3B in 2016

		Systematic, Increase
		Systematic, Decrease
		Unsystematic, Increase
		Unsystematic, Decrease

4. A stock with a price of $10 per share must have a lower market capitalization than a stock with $100 per share.

Answer 1

Systematic Risk:

Systematic risk is also referred to as non-diversifiable risk or market risk. Systematic risk is the fluctuations in the returns on securities that occur due to macroeconomic factors and external events. These factors could be the political, social or economic factors that affect the business. Systematic risk can be caused due to unfavorable reasons such as an act of nature like a natural disaster, changes in government policy, international economic components, changes in the nation’s economy, etc.

Unsystematic Risk:

The fluctuations in returns of a company arising due to micro-economic factors are termed as unsystematic risks. These risk factors exist within the company and can be avoided if necessary action is taken. The risk factors can include the production of undesirable products, labor strikes, etc.

1) US home construction drop 30..2% in april as virus rage.

This is systematic since uncontrollable and unavoidable as it effect the market at large

and due to low in demand in virus rage the price will decrease.

2) Therefore, increase in costs due to coronovirus is an extrernal event and affects all the industries but in to different degrees. As Home Depots sales have increased there is a rise in demand and thus the answer is option a which is Systematic, Increase.

3) Walmart says it will discontinue Jet, which it acquired for $3B in 2016

This is unsystematic and prices will decrease.

4) False- This is False since a stock with a price of $10 per share could have a higher market capitalization than a stock with $100 per share due to the number of outstanding shares in the market of these individual stocks.

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