MBA 5640: Take Home Exam
Individual faces many types of risk, such as investment risk, liability risk, health risk and property
• Like a business, individual faces also investment risk. That is the risk related to the volatility of interest rate when investing, say for example, in the 401k. This risk can be measured by standalone risk, which is the standard deviation of each security. To minimize this risk, individual needs to diversify her or his portfolio by dividing funds among securities or company stock fund and other target retirement fund. Moreover, consider investing in securities with lower interest rate of returns protect your investment from loss because they are less risky.
• Liability risks: liability risk related to the risk of being liable to extend some of the damage to other’s property resulting from accident for example. The liability risk is measure according to the element being insured. For instance in the case of accident, the liability risk is measured by the probability that a person involves in the accident. This risk can be managed by transferring some the liabilities to a third party by the mean of insurance like auto insurance.
• Health risk: Health risk is risk related to the safety. Individuals are constantly concerned with their health and those of their kids. This risk is measured by the rate of mortality and risk of death. To manage this risk individuals purchase health insurance or life insurance from major insurance companies.