A client holds a highly concentrated portfolio consisting solely of common shares in their employer's publicly traded company, where they also have a significant portion of their human capital invested. This strategy primarily exposes them to what type of risk?

Question: A client holds a highly concentrated portfolio consisting solely of common shares in their employer's publicly traded company, where they also have a significant portion of their human capital invested. This strategy primarily exposes them to what type of risk?

Answer options:

• Systematic risk, as the company's performance is tied to the overall market.
• Interest rate risk, due to the company's borrowing costs. ✅ Unsystematic (company-specific) risk, as their wealth is heavily tied to one entity.
• Foreign exchange risk, given their Canadian-based employment and investment.

Correct answer: Unsystematic (company-specific) risk, as their wealth is heavily tied to one entity.

Explanation: Holding a concentrated position in a single company's stock, especially one's employer, creates significant unsystematic risk. A decline in that specific company's fortunes would impact both their employment income and their investment portfolio.