ECONOMICS
RISK AND RETURN
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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BHP Billiton posts lower than expected earnings.
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Woolworths announces record earnings.
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The government raises interest rates unexpectedly.
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Coca-Cola announces higher than expected earnings
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Detailed explanation-1: -Answer and Explanation: The answer is: A. The Federal Reserve unexpectedly announces an increase in target interest rates. Interest rates and recessions are examples of systematic risk because they affect the entire market.
Detailed explanation-2: -Systematic risk is a risk that impacts the entire market or a large sector of the market, not just a single stock or industry. Examples include natural disasters, weather events, inflation, changes in interest rates, war and even terrorism.
Detailed explanation-3: -Types of Systematic Risk. Systematic risk includes market risk, interest rate risk, purchasing power risk, and exchange rate risk.
Detailed explanation-4: -What Is Interest Rate Risk? Interest rate risk is the potential for investment losses that can be triggered by a move upward in the prevailing rates for new debt instruments. If interest rates rise, for instance, the value of a bond or other fixed-income investment in the secondary market will decline.
Detailed explanation-5: -Types of systematic risks can include interest rate changes, recessions, or inflation.