risk homework

Homework Assignment 1

1. Refer to the article in Topic 1 “N.J. Boardwalk Fire Blamed on Old Wiring Damaged by Hurricane Sandy”.

a. Identify and briefly discuss one major type of pure risk illustrated in this article. Recall that there are three types of pure risk we discussed in class.

In this case the pure risk would be property risk. The salt water-damaged wiring burned down 30 businesses. The 30 businesses are properties that have been destroyed.

b. Identify one example of a hazard illustrated in the article.

The business burned down by the wiring is physical hazard. The old wiring increases the probability of causing a fire.

c. What type of hazard is being illustrated by your example and why?

The answer would be physical hazard, because the wiring was old (build from 1970) and have already been through Hurricane Sandy tragedy that increased the probability of it being easily failed on its own and damage by seat water and eventually causes a fire. The businesses burned down by the wiring are the physical hazard.

d. Explain why your answer is an example of a hazard in general.

A hazard is something that increases the probability of a peril. The old wiring increases the probability and likelihood of causing a fire, that fits with the definition of hazard and set water-damaged wiring burning down properties would be a physical hazard.

2. Refer to the Case Studies article in Cyber risk / Target breach “Data Breach at Target Began With Contractor”. 


a. Provide an example of a loss illustrated in this article. What is the peril associated with this loss? (2 points)

Financial loss would be an example in this article. The data breach can cause the company to pay a large amount of money for settlement and legal fees. The data being breached is the peril in financial loss.




b. Identify one example of a hazard illustrated in the article. What type of hazard is being illustrated by your example and why? Be sure and explain your answer. (3 points)

Physical hazard would apply in this case. The credit/debit card number and customers’ information being stolen are the physical hazard. The data breach caused the severity of the loss to increase. People will sue Target for breaching their information. Target will have to pay a large amount of money for settlement. Their stock price will fall, as well as revenues.

3. Refer to the Case Studies article in Cyber risk/Target breach “Target Still Doesn't Know the Full Cost of Its Breach”. 


Recall our discussion in class concerning the cost or burden of risk. Also read about this concept in Chapter 1 of your text under the heading ‘Financial Consequences of Risk’ on pages 1.12 – 1.14. You will need to see how our discussion is related to the reading in the text in order to answer this question properly. 


Identify and briefly discuss two examples of cost of risk illustrated in this article. Briefly explain why each example you chose from the article represents a cost of risk. (4 points)

Reputation lost is applied in this example; the cost of residual uncertainty will have effect on consumers, investors, and suppliers. According to the textbook “consumers may not be willing to pay as much for products from organizations with a poor safety reputation”. In this case Target got data breached, consumers will worry about their information getting breached so they will think twice before they shop there. According to the article Target’s stock price has dropped $0.66 per share. “Investor will require a larger rate of return on their investment from riskier organizations,” indicates that they will have a difficult time in the stock market. Financial loss is also a cost of risk in this article. "Target still doesn’t know the full cost of its breach,” indicates that their financial loss is a very large amount of money that it has to go over their expected cost of losses. They have to pay settlement, legal fees. Revenue loss is also hurting the company gradually, since their income has dropped 16% to $418 million.