Explain the difference between pure risk and speculative risk.

Pure risk refers to situations where there is only a possibility of loss or no loss at all. In pure risk, there is no chance of gaining or making a profit, only the potential for loss. Examples of pure risk include natural disasters, accidents, and illnesses.

On the other hand, speculative risk involves the possibility of both gain and loss. Speculative risk is taken on voluntarily in the hopes of making a profit, but there is also a chance of experiencing a loss. Examples of speculative risk include investing in the stock market, starting a business, or gambling.

In summary, the main difference between pure risk and speculative risk is that pure risk involves only the possibility of loss, while speculative risk involves the possibility of both gain and loss.

Pure Risk

- Definition: A risk where only loss can occur, with no potential for gain.
- Characteristics:
- Arises from events outside one's control (e.g., natural disasters, accidents)
- Loss is uncertain but possible
- Examples: fire, flood, death

Speculative Risk

- Definition: A risk where both gain and loss are possible.
- Characteristics:
- Arises from decisions or choices made (e.g., investments, business ventures)
- Potential for both positive and negative outcomes
- Examples: investing in the stock market, starting a business

Key Differences:

| Feature | Pure Risk | Speculative Risk |
|---|---|---|
| Potential outcomes | Only loss | Both loss and gain |
| Nature of risk | Uncontrollable | Controllable |
| Certainty of loss | Uncertain but possible | Uncertain |
| Examples | Fire, flood | Stock market investments |