Multiple Choice
Which method of calculating return on investment (ROI) makes it easiest to compare different investments?
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7. Receivables and Investments
Introduction to Investments in Securities
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Which of the following best describes the relationship between risk and return in investments?
A
Higher risk is generally associated with higher potential return.
B
There is no relationship between risk and return.
C
Higher risk is generally associated with lower potential return.
D
Lower risk always guarantees higher return.
Verified step by step guidance1
Understand the concept of risk and return: Risk refers to the uncertainty or potential for loss in an investment, while return refers to the profit or gain earned from the investment.
Learn the general principle in finance: Higher risk is typically associated with higher potential returns because investors demand greater compensation for taking on more uncertainty.
Evaluate the options provided: Analyze each statement to determine which aligns with the principle of risk and return.
Option 1: 'Higher risk is generally associated with higher potential return' aligns with the principle that investors expect higher returns for taking on greater risk.
Option 2, 3, and 4: These statements contradict the established relationship between risk and return, as they either deny the relationship or misrepresent it.
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