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 chairman of the Federal Reserve suddenly resigns
C) a key employee 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

Question

Quizplus · Accepted Answer

Nondiversifiable risk, also known as systematic risk, refers to risks that affect the entire market or a large segment of it and cannot be diversified away by holding a diversified portfolio of assets. The sudden resignation of a well-respected chairman of the Federal Reserve is an example of nondiversifiable risk because it affects the entire market and cannot be diversified away by holding a diversified portfolio of assets. The other answer choices are examples of diversifiable risks, also known as unsystematic risks, which can be diversified away by holding a diversified portfolio of assets.

Which One of the Following Is an Example of a Nondiversifiable