When it comes to investing, what is the typical relationship between risk and return?
The greater the potential risk, the smaller the potential return
. The greater the potential risk, the greater the potential return. There is no relationship between risk and return.
What is the typical relationship between risk and return?
The risk-return tradeoff states
the higher the risk, the higher the reward—and vice versa
. Using this principle, low levels of uncertainty (risk) are associated with low potential returns and high levels of uncertainty with high potential returns.
Why might a town decide to issue bonds?
Why might a town decide to issue bonds? …
Stocks allow investors to own a portion of the company; bonds are loans to the company
. When you buy a ____ , you are loaning money to an organization.
Why is a high quality bond typically considered a lower risk investment than a stock?
Why is a high-quality bond typically considered a lower-risk investment than a stock?
A bond typically pays a fixed, predictable amount of interest each year
. … The issuer will pay you back, plus interest.
Which of the following statements are true about the relationship between risk and return when it comes to investing?
Q. Which of the following statements are true about the relationship between risk and return when it comes to investing? When it comes to investing,
risk and return have a direct relationship, in that the riskier an investment, the higher its expected return.
What is the general in words relationship between risk and return?
Generally,
the higher the potential return of an investment, the higher the risk
. There is no guarantee that you will actually get a higher return by accepting more risk. Diversification enables you to reduce the risk of your portfolio without sacrificing potential returns.
What is difference between risk and return?
Return are the money you expect to earn on your investment. Risk is the chance that your actual return will differ from your expected return, and
by how much
. You could also define risk as the amount of volatility involved in a given investment.
What is the primary reason to issue stock?
A company typically goes public and issues stock in order to raise money that it can use to expand the business
. For example, the money earned from the IPO could be used to build a new factory or hire more employees with the goal of making the company more profitable.
What is the main advantage of a mutual fund for an investor?
Mutual funds are one of the most popular investment choices in the U.S. Advantages for investors include
advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing
. Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses.
What would be considered the highest risk investment type?
Which of the following would be considered the highest risk portfolio? A portfolio made up of
60% stocks
, 30% mutual funds, and 10% Treasury bonds. … The greater the potential risk, the greater the potential return.
What are the dangers of over diversifying your portfolio?
Financial-industry experts also agree that over-diversification—buying more and more mutual funds, index funds, or exchange-traded funds—can
amplify risk, stunt returns, and increase transaction costs and taxes
.
What investment has the lowest risk?
The investment type that typically carries the least risk is
a savings account
. CDs, bonds, and money market accounts could be grouped in as the least risky investment types around. These financial instruments have minimal market exposure, which means they’re less affected by fluctuations than stocks or funds.
Which two factors have the greatest influence on risk for an investment?
Which two factors have the greatest influence on risk for an investment?
The duration of the investment.
What is meant by risk and return?
It is
the uncertainty associated with the returns from an investment that introduces a risk into a project
. The expected return is the uncertain future return that a firm expects to get from its project. … Risk is associated with the possibility that realized returns will be less than the returns that were expected.
Which of the following is correct there is a positive relationship between risk and return?
The relationship between risk and required rate of return is known as the risk-return relationship. It is a positive relationship because the
more risk assumed
, the higher the required rate of return most people will demand. Risk aversion explains the positive risk-return relationship.
Why risk and return is important in business?
Risk, along with the return, is a major consideration in capital budgeting decisions. The
firm must compare the expected return from a given investment
with the risk associated with it. Higher levels of return are required to compensate for increased levels of risk.
