AD Banker Comprehensive Practice Exam

Which of the following would be considered a speculative risk?

1. The possibility your car is totaled in an auto accident

2. The possibility the painting you bought might be a long-lost masterpiece

3. The possibility you will die on the job at a young age

4. The possibility you will become disabled

The correct answer is: The possibility the painting you bought might be a long-lost masterpiece

Speculative risk involves situations where there is the potential for both loss and gain, creating uncertainty regarding the outcome. When considering the scenario of the painting you bought potentially being a long-lost masterpiece, this perfectly illustrates speculative risk. There is a chance the value of the painting could increase dramatically if it turns out to be a significant piece of art, providing a financial gain. Conversely, if it turns out to be of little value, you could incur a loss. This characteristic of having both upside and downside makes it distinctly different from pure risks, which are situations where the only possible outcomes are loss or no loss. In the other scenarios presented, while they all involve potential negative outcomes, they do not offer the possibility of a financial gain, which is essential for classifying something as speculative. Thus, the option involving the painting stands out as the only scenario where both positive and negative outcomes exist, solidifying it as the correct choice for identifying a speculative risk.