Multiple Choice
Which term refers to the amount of money you must pay toward expenses before your insurance begins to cover the remaining costs?
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1. Introduction to Accounting
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The amount of money you are able to accept losing as an investor is called:
A
Risk tolerance
B
Liquidity
C
Asset allocation
D
Return on investment
Verified step by step guidance1
Understand the concept of 'Risk Tolerance': It refers to the amount of loss an investor is willing to accept in their investment portfolio. This is a key factor in determining investment strategies and asset allocation.
Differentiate 'Risk Tolerance' from other terms: Liquidity refers to how quickly an asset can be converted into cash without affecting its market price. Asset allocation is the process of dividing investments among different asset categories, such as stocks, bonds, and cash. Return on investment (ROI) measures the profitability of an investment relative to its cost.
Analyze the question: The question specifically asks about the amount of money an investor is willing to lose, which directly aligns with the definition of 'Risk Tolerance'.
Relate 'Risk Tolerance' to investment decisions: Investors with high risk tolerance may choose riskier investments with potentially higher returns, while those with low risk tolerance may prefer safer investments.
Conclude the reasoning: Based on the definitions and context provided, the correct answer to the question is 'Risk Tolerance'.
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