Final answer:
The risk of owning an asset is influenced by unanticipated events, surprises, and the inaccuracy of forecasts. These factors can extensively impact the expected and actual returns of various investments like stocks, bonds, and mutual funds. Determining the safest and riskiest investments involves analyzing the expected rate of return, risk level, and liquidity.
Step-by-step explanation:
The risk of owning an asset comes from several factors that include unanticipated events, surprises, and the inaccuracy or variability in forecasts. These factors contribute to what is known as economic risks or investment risks and can significantly affect the expected rate of return on an investment, leading to actual returns that are much lower or higher than anticipated. Investments such as stocks, bonds, and mutual funds all come with a certain level of risk, impacted by market conditions, global events, and a myriad of other unpredictable factors.
In terms of specific investments, bank accounts typically offer lower risk but also lower rewards. Conversely, stocks may offer higher potential returns but come with a higher chance of volatile fluctuations in value. Determining the safest or riskiest investment involves analyzing the expected rate of return, the level of risk, and liquidity. A safest investment is usually one with less variability in returns and more protection against loss, whereas the riskiest investment would be one that could potentially offer higher returns but with a much greater uncertainty and chance of loss. To find the expected value for each investment, one must look at the historical performance and current conditions to make an informed estimation of potential returns. The investment with the highest expected return will typically be the one that, despite its associated risks, offers the greatest potential for profit over the investment period.