Question

Which of the following risks faced by a business is most likely to be nondiversifiable?

A. An explosion at the firm’s plant

B. Worker injury

C. Reduced earnings due to poor economic conditions

D. A class-action product liability claim

Answer 1

Solution:
	Answer is C. Reduced earnings due to poor economic conditions
Working Notes:
	Risks faced by a business is most likely to be nondiversifiable are those risk which cannot be reduced to minimum level , with all better management and policy . Non diversifiable risk is the risk at macro level which is out of control of the business, like economic conditions, Government policy, natural calamities and so on .
	An explosion at the firm’s plant
	Worker injury
	A class-action product liability claim
	Remaining these three can be diversified by having better policy & investment on plant structure , on worker training , inspection of product before send to market and so on.
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