Which of the following are examples of diversifiable risk?
I.earthquake damages an entire town
II.federal government imposes a $100 fee on all business entities
III.employment taxes increase nationally
IV.toymakers are required to improve their safety standards
A)I and III only
B)II and IV only
C)II and III only
D)I and IV only
E)I, III, and IV only

Question

Quizplus · Accepted Answer

Diversifiable risk refers to risks that are specific to a particular company or industry and can be reduced or eliminated by diversification. Option I is not diversifiable because it affects the entire town, so all investments in that town would be affected. Options II and III are not diversifiable because they affect all businesses or individuals nationally. Option IV, however, is diversifiable because it only affects toymakers and not other industries, so diversification into other industries would help reduce the risk.

Which of the Following Are Examples of Diversifiable Risk