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 1 did they need to understand better?
A)Risk and return go hand in hand.
B)Nothing happens without a plan.
C)The time value of money
D)Stuff happens,the importance of liquidity.

Question

Quizplus · Accepted Answer

DEmployees of Bear Stearns faced significant financial losses due to their investments being concentrated solely in the company's stock, highlighting the principle that risk and return go hand in hand (A). Additionally, the situation underscores the importance of liquidity (D), as having all retirement savings in a single, illiquid investment can lead to financial distress if the need to access funds arises unexpectedly or if the investment's value plummets.

In 2008,the Bear Stearns Company Collapsed Could Not Be Saved