Question

How does the risk/return ratio of a government bond compare with that of other types of investments? A) Government bonds have higher risk and higher returns. B) Government bonds provide higher returns and lower risk. C) Government bonds typically provide lower returns, at lower risk. D) Government bonds have about the same risk/return ratio as other investments.

Answer 1

I think the most appropriate answer would be C.


I hope it helped you!

Answer 2

C) Government bonds typically provide lower returns, at lower risk.

Step-by-step explanation:

There is an inverse relationship between risk and yield in financial market stocks. Typically, higher risk stocks offer higher returns, otherwise there would be no incentive for the investor. Conversely, when stocks offer little risk, compensation tends to be lower. The decision, therefore, will depend on the investor's risk appetite.

What determines the risk, in the case of companies, are the market parameters and strategic decisions of the company. In the case of the government, the chance of default is very low. This is because for a person to lose money on stocks, the company must default. Companies only default when they fail. The Government is a very powerful economic agent and has the prerogative to finance its own debt. In this context, only in a catastrophic scenario can a government default happen. On the other hand, due to the greater security of this type of investment, the remuneration is usually low.