08 Aug Explain the differences between systematic and unsystematic risk.
Overview
People should understand the impact of different types of risk on financial health, whether they’re dealing with personal or corporate finances. The risks for personal finance often only affect individuals and families. These risks come up, for example, when deciding whether you can afford to buy a house or invest in stocks. Financial risks for businesses often affect multiple people throughout the entire company. This includes individuals who do not work in the finance department. When businesses make finance-related decisions, it’s important that they know how their decisions affect all parts of their company.
Prompt
Read the Assessing a Company’s Future Financial Health case study. Then write a response.
Specifically, you must address the following rubric criteria:
- Systematic and Unsystematic Risk: Explain the differences between systematic and unsystematic risk.
- Financial Risks: Describe the potential impacts of the following types of financial risk on the company featured in the case study:
- Interest rate risk
- Economic risk
- Credit risk
- Operational risk
- Lower Growth Impact: Explain the impact that a lower growth in sales could have on the dividend policy and retained earnings for the company described in the case study.
- Higher Growth Impact: Explain the impact that a higher growth in sales could have on the dividend policy and retained earnings for the company described in the case study.
