Question

Risk refers to the degree of uncertainty about the rate of return on a asset and the potential harm that could arise when financial returns are not what the investor expected

a. True
b. False

Answer 1

True, The expected rate of return is the average return an investment is expected to provide, while risk measures the uncertainty of a project's profitability. A high-risk investment has a wider range of potential payoffs.

Step-by-step explanation:

The expected rate of return refers to the average return an investment is expected to provide, either through interest payments, capital gains, or increased profitability. Risk measures the uncertainty of a project's profitability, including factors like default risk and interest rate risk. A high-risk investment has a wide range of potential payoffs, while a low-risk investment has returns that are fairly close to its expected rate of return. The actual rate of return is the total rate of return, including capital gains and interest paid on an investment at the end of a time period.