Question

Stock prices and stand-alone risk You invest $100,000 in 40 stocks, 20 bonds, and a certificate of deposit (CD). What kind of risk will you primarily be exposed to?

a. Portfolio risk
b. Stand-alone risk
Generally, investors would prefer to invest in assets that have: _________.
a. A high level of risk and low expected returns
b. A low level of risk and high expected returns

Answer 1

Answer and Explanation:

The risk that primarily be exposed is portfolio risk as the portfolio risk is the risk in which the risk is associated with the overall portfolio. On the other hand the stand alone risk is the risk that is associated with the single one only.

Since in the given situation, there is a different type of investment this represents that this is a portfolio risk

The investor always prefer for less level of risk and the high expected return in order to maximize the investment return with lesser risk level