Final answer:
The statement given is false; pure risk is not associated with investment decisions but with situations where there is no prospect of gain, only the possibility of loss. Investments involve speculative risk, where there is a chance for both gain and loss. The balance between potential risks and returns is determined by individual investors’ risk tolerance and personal preferences.
Step-by-step explanation:
The statement 'Pure risk is the uncertainty associated with an investment decision' is false. Pure risk refers to situations where there are only possibilities of loss or no loss, typically unassociated with investments. Instead, investment decisions involve speculative risk, which includes both the potential for loss and gain. Expected rate of return is a concept associated with speculative risk and reflects the average return an investor expects over time, expressed as a percentage. It considers a variety of risks, such as default risk and interest rate risk. A high-risk investment is associated with greater volatility the actual returns can significantly diverge from expected returns over different periods. Conversely, a low-risk investment tends to have actual returns that align more closely with the expected rate of return.
Throughout history, high risk levels have sometimes been detrimental to investment portfolios, particularly when market conditions are unfavorable. This necessitates a balance between the desire for high returns and the tolerance for potential losses. The tradeoff between return and risk is a decision that is influenced by an investor's personal preferences and risk appetite.