Asked by Erika Frederick on Jul 08, 2024
Verified
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.
Nondiversifiable Risk
A type of investment risk that is inherent to the entire market or market segment and cannot be eliminated through diversification.
Bank of Canada
Canada's central bank, responsible for conducting monetary policy, issuing currency, and overseeing the health of the financial system.
Resigns
refers to the act of formally giving up or quitting one's office or position, often with formal notification.
- Identify and distinguish between non-diversifiable (systematic) and diversifiable (unsystematic) risks.
Verified Answer
PA
Paola ArenasJul 15, 2024
Final Answer :
B
Explanation :
Nondiversifiable risk, also known as systematic or market risk, affects the entire market or economy, not just a specific company or industry. The sudden resignation of a well-respected governor of the Bank of Canada could impact the entire financial system or economy, making it a nondiversifiable risk.
Learning Objectives
- Identify and distinguish between non-diversifiable (systematic) and diversifiable (unsystematic) risks.