Mayukh Mondal 915677129 Mayukh Mondal 915677129 5/14/2021 Homework Assignment 1 Mayukh Mondal 915677129 1. Refer to the article in Topic 1 / Core Articles, “Florida Crisis Highlights a Nationwide Risk From Toxic Ponds.” a. Recall our discussion in class concerning three types of pure risk. Identify and briefly discuss one major type of pure risk illustrated in this article. (2 points) Property Pure risk is discussed in this article. In the section of the article titled ‘Piney Point and Beyond’, the article discusses how farmers collect manure because of its fertilizing properties. They then store all this manure in cesspools. But there is a risk that these cesspools will leach into groundwater reservoirs beneath the soil, contaminating it and affecting the long-term health of the surrounding environment. There is also the possibility that this contaminated groundwater will also produce gases such as ammonia and hydrogen sulfide, further contaminating the environment. Because there is a possibility that the land is being damaged by these cesspools, property pure risk is discussed in this article. b. What are the potential financial consequences associated with this type of pure risk? (2 points) One possible financial consequence is the damaged property will be unable to provide benefits for the owners. In this scenario, the farmland may become too toxic for farmers to grow their crops on. Without safe crops, farmers have lost their main source of revenue. Thus, they incur financial losses because of the property pure risk. Another potential financial consequence of this pure risk is that owners may have to hire help to repair any damage done to their property, incurring additional costs. In this scenario, farmers may have to hire Mayukh Mondal 915677129 external services to help fix the damage these cesspools may have done. As stated above, farmers will be unable to sell toxic crops due to the toxicity of the farmland they own. Because of this, they may be forced to hire inspectors to assess the damage and to see if they need to buy new farmland or if they can restore the condition of the environment. This will incur additional financial costs for farmers, leading to another potential financial consequence of this pure risk. c. What is/are the peril(s) involved? (2 points) The peril associated with this pure risk is the decision by farmers to collect and store manure into these open pits. d. Identify one example of a hazard illustrated in the article. (2 points) A hazard in this article is the climate change affecting the wastewater ponds in Florida. e. Explain why your answer in (1d) is an example of a hazard. (2 points) This is an example of a physical hazard. Florida is affected by storms and hurricanes every year. These storms cause the wastewater ponds in Florida to overflood and spill into other neighboring water bodies and rivers. This spreads the toxic waste material across Florida. According to the article, climate change is bound to increase the frequency of tropical storms that occur in Florida each year. And these storms are bound to be more destructive than in previous years. Thus, climate change is increasing the losses’ frequency and severity suffered during storms. Mayukh Mondal 915677129 2. Refer to the Topic 1 / Core Articles, “Peloton Recalling All Treadmills After Reports of Injuries, One Death.” 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 component of cost of risk. (6 points) One example of a component of cost of risk illustrated in this article is the loss of revenue caused by Peloton’s reputation loss. Peloton initially decided to delay Tread+ recall. Because they are doing it now, they are bound to lose reputation due to the faultiness of their product and their decision not to immediately recall the items. This reputation loss will in turn lead to fewer people buying their products, leading to revenue loss. Peloton’s reputation loss is already affecting them as shown by their market value, which has lost $4.1 billion. Thus, this is an example of a loss of “goodwill” cost. Another example of a component of cost of risk in this article is Youssef Squali’s analysis, which illustrates cost of residual uncertainty. In the article, Squali says that, “‘We acknowledge that this recall will likely result in significant nearterm one-time financial costs and operational disruption, with potential reputational damage. Stepping back and looking at the broader picture, however, we believe that the secular growth trends in the home fitness industry remain intact.” His analysis shows that his subjective view of Peloton’s long-term future after the recall is not bleak. He is assuring his clients that there is low risk in keeping their Peloton stocks. Mayukh Mondal 915677129 Thus, this analysis represents the cost of residual uncertainty created by Peloton’s recall.
