Chapter 11, Problem 4CTCR

Systematic versus Unsystematic Risk. Indicate whether the following events might cause stocks in general to change price, and whether they might cause Big Widget Corp.’s stock to change price.

a.    The government announces that inflation unexpectedly jumped by 2 percent last month.

b.    Big Widget’s quarterly earnings report, just issued, generally fell in line with analysts’ expectations.

c.    The government reports that economic growth last year was 3 percent, which generally agreed with most economists’ forecasts.

d.    The directors of Big Widget die in a plane crash.

e.    Congress approves changes to the tax code that will increase the top marginal corporate tax rate. The legislation had been debated for the previous six months.