Answer 1)
a)There's a substantial unexpected increase in inflation:
Undiversifiable/Systematic Risk: Since inflation and related increase in it is a macro economic factor and something not related to performance of stock or related companies, the diversiifcation process cannot deal with it and hence effect of inflation will remain in the portfolio construction even if we include all the availble stock in our portfolio.
b) Major Recession in US:
Undiversifiable/Systematic Risk: Just like Inflation, Recession is also an macro economic factor and an investor cannot deal with it. Important to note that an investor is always compensated for bearing systematic risk not ...