Question

Which one of the following is an example of a nondiversifiable risk?

A. a well respected president of a firm suddenly resigns
B. a well respected chairman of the Federal Reserve suddenly resigns
C. a key employee suddenly resigns and accepts employment with a key competitor
D. a well managed firm reduces its work force and automates several jobse.a poorly managed firm suddenly goes out of business due to lack of sales

Answer 1

Answer:

B. a well respected chairman of the Federal Reserve suddenly resigns

Explanation:

A non diversificable risk is a risk that cannot be eliminated by diversifying a portfolio. It is dependent on the market conditions. E.g. recession, war.

A diversificable risk is a risk that can be eliminated by diversifying a portfolio. Examples include: a key employee suddenly resigns and accepts employment with a key competitor, a well managed firm reduces its work force and automates several jobs.

I hope my answer helps you.