Which of the following are examples of diversifiable risk?
I. An earthquake damages an entire town
II. The federal government imposes a $100 fee on all business entities
III. Employment taxes increase nationally
IV. All 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

Which of the following are examples of diversifiable risk?
I.  An earthquake damages an entire town
II. The federal government imposes a $100 fee on all business entities
III. Employment taxes increase nationally
IV. All 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

Quizplus · Accepted Answer

Diversifiable risk refers to risks that can be reduced by diversifying an investment portfolio. In this case, events like an earthquake damaging an entire town and all toymakers being required to improve their safety standards are specific risks that are unique to certain industries or locations and can be diversified by investing in other industries or locations. On the other hand, federal government imposing a $100 fee on all business entities and national employment tax increase are systematic risks that affect the entire market and cannot be diversified away. Therefore, options I and IV are examples of diversifiable risks.

Which of the Following Are Examples of Diversifiable Risk