In 2008, the Bear Stearns Company collapsed could not be saved and was sold to JP Morgan Chase for $10 per share, a price far below its pre-crisis 52-week high of $133.20 per share. Prior to the collapse, many of the company's employees had all of their retirement money invested only in Bear Stearns common stock. This was a very risky financial strategy for just such a reason: What if the company dissolves? What financial principle from Chapter One did they need to understand better?

Question

Quizplus · Accepted Answer

The employees of Bear Stearns needed to understand that risk and return go hand in hand. By investing all of their retirement money in Bear Stearns common stock, they were taking on a very high level of risk. While their returns may have been higher than if they had diversified their investments, the collapse of the company resulted in them losing everything. They needed to understand the importance of diversifying their investments to manage risk.

In 2008, the Bear Stearns Company Collapsed Could Not Be