Question

Which of the following factors will increase the risk level of an investment?

A) I and II only
B) III and IV only
C) I, II, and III only
D) I, II, III, and IV

Answer 1

Market volatility, leverage, investment diversity, and time horizon are factors that increase the risk level of an investment.

Step-by-step explanation:

Investment risk levels can be influenced by several factors. The correct option that will increase the risk level of an investment is D) I, II, III, and IV. Let's break down each factor:

1. Market volatility: This refers to the level of fluctuations or unpredictability in the market. Higher market volatility increases the risk level of an investment as prices can fluctuate rapidly.
2. Leverage: Using borrowed money to invest increases the risk level because it amplifies both gains and losses.
3. Investment diversity: Lack of diversification increases the risk level as the investment is heavily dependent on a single asset or industry.
4. Time horizon: Longer investment time horizons generally reduce risk as there is more time to recover from potential losses.

Therefore, all four factors - market volatility, leverage, investment diversity, and time horizon - can increase the risk level of an investment, making option D) I, II, III, and IV the correct answer.