Which One of the Following Is an Example of a Nondiversifiable

question 116

Multiple Choice

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.

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Definitions:

Cash Flow

The complete total of funds entering and leaving a business, notably affecting its immediate financial resources.

Interest Expense

The cost incurred by an entity for borrowed funds over a period, which can appear on the income statement as a result of loans, bonds, or credit lines.

Semiannually

Pertains to an event or process that occurs twice a year.

Maturity

The date on which a financial instrument (such as a bond) or an investment becomes due for payment or is fully repaid.