Which one of the following is an example of diversiﬁable risk?
A) A decrease in the average cost of living.
B) An increase in the prime interest rate.
C) An increase in the minimum hourly wage.
D) A new government regulation on aircraft engines.
E) A decrease in federal income taxes on business incomes.

Question

Quizplus · Accepted Answer

A new government regulation on aircraft engines is an example of diversifiable risk because it only affects companies involved in the aircraft industry. Other industries are not affected by this risk, so diversification across multiple industries can help to offset the risk. The other options listed are macroeconomic or systematic risks that affect the entire economy and cannot be diversified away.

Which One of the Following Is an Example of Diversiﬁable