CFA Practice Question

There are 294 practice questions for this study session.

CFA Practice Question

A firm in South Dakota announces a revolutionary method of making auto airbags in a way that decreases their risk to automobile occupants. This is a type of surprise that would be characterized as unsystematic risk. True or False?
Correct Answer: True

User Contributed Comments 5

User Comment
SanderLin Since can be diversified away, it is the unsystematic risk.
Rotigga The development is firm-specific, so it is unsystematic risk.
BigJimStud I thought risk was always in terms of the asset, not in terms of what the asset may produce in the market and how it mitigates risk for a non market participant.
gulfa99 systematic risks are macroeconomic..GDP, housing index, retail sales, CPI etc which have overall positive or negative impact on economy
ascruggs92 BigJimStud. A risk is anything that can adversely affect returns, it doesn't have to be a financial metric. In this example, most companies wouldn't be affected, but if you own a company that makes airbags, you should be concerned that they will lose sales.

Another good example would be Kodak or Polaroid. The invention of the digital camera eventually made these companies' products obsolete. Anything that causes future uncertainty is considered a risk
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