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 governor of the Bank of Canada suddenly resigns.
C) A key employee of a ﬁrm suddenly resigns and accepts employment with a key competitor.
D) A well-managed ﬁrm reduces its work force and automates several jobs.
E) A poorly managed ﬁrm suddenly goes out of business due to lack of sales.

Question

Quizplus · Accepted Answer

Nondiversiﬁable risk refers to risks that affect the whole market or economy and cannot be eliminated through diversification. The sudden resignation of a well-respected governor of the Bank of Canada is an example of a nondiversiﬁable risk as it can have a significant impact on the entire financial market, which cannot be diversified away. The other options involve company-specific risks that can be diversified away by investing in a diverse portfolio of assets.

Which One of the Following Is an Example of a Nondiversiﬁable