Exercise 1: Calculating Enron's Real Loss and What Diversification Would Have Done — Possible Solution
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Using this chapter's own real figures:

Percentage loss = (Starting price - Ending price) / Starting price x 100
                = (83.13 - 0.12) / 83.13 x 100
                = 83.01 / 83.13 x 100
                = approximately 99.86%

An investor holding only Enron stock lost approximately 99.86% of that
holding's value - functionally, almost the entire investment, since a
share worth $0.12 is close to worthless in practical terms.

WHAT DIVERSIFICATION WOULD HAVE PROTECTED AGAINST
This chapter classifies Enron's collapse as unsystematic (company-
specific) risk - it was driven by Enron's own accounting fraud, not by
a decline affecting the wider stock market at the same time. This is
exactly the kind of risk diversification genuinely protects against. If
the same investor had instead held Enron stock as just one small piece
of a real portfolio spread across many different companies, the same
99.86% loss on the Enron position alone would only have reduced the
overall portfolio's value by roughly whatever small percentage Enron
represented of the total - a real, serious loss on that one holding,
but not remotely a near-total loss of the investor's own overall wealth.

WHAT DIVERSIFICATION WOULD NOT HAVE PROTECTED AGAINST
It's equally important to be precise about the limits here. Diversifying
away from Enron specifically would not have protected against a
different, unrelated real risk - if the entire stock market had fallen
sharply at the same time, for reasons unrelated to Enron's own fraud
(the way Black Monday affected essentially all stocks together),
diversification across many companies would not have shielded the
investor from that separate, systematic decline. Diversification's own
real protection is specific to the type of risk (company-specific) that
actually caused Enron's collapse.

ANSWER: An investor holding only Enron stock lost approximately 99.86%
of that holding's value ((83.13 - 0.12) / 83.13 x 100). Diversification
would have genuinely protected against this specific outcome, since
Enron's collapse was unsystematic, company-specific risk - spreading
the same money across many different companies would have limited the
damage from Enron's own failure to a small fraction of the total
portfolio, rather than a near-total loss. Diversification would not,
however, have protected against a separate, unrelated systematic
decline affecting the whole market at the same time, since that
protection is specific to company-specific risk, not market-wide risk.

WHY THIS WORKS AS AN ANSWER
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This correctly calculates the real percentage loss using the chapter's
own stated figures, and precisely distinguishes what diversification
would and would not have protected against, rather than treating
diversification as a blanket protection against any possible loss.