According to the theory and logic of the benefits of diversification that we discussed in class, diversification reduces the risks borne by the investor.

1. Clearly and completely explain the concept of systematic risk, and give a specific example of a systematic risk that the managers of General Motors Corp. and the GM shareholders could face.

2. Clearly and completely explain the concept of unsystematic risk, and give a specific example of unsystematic risk that the managers of General Motors Corp. and the GM shareholders could face.

**Make sure to give a specific example for both a and b.

3. Clearly, completely, and specifically explain how/why, diversification (achieved through holding a portfolio of stocks) reduces risk. Make sure to incorporate the concepts of systematic and unsystematic risk into your discussion. ***Make sure to explain what happens to both unsystematic and systematic risk in a diversified portfolio, and why.