Question

Which investment best exemplifies the principle that the greater the risk, the greater the potential reward?

1) High-yield (junk) bonds.
2) Treasury bonds.
3) Savings account.
4) Certificates of deposit (CDs).

Answer 1

High-yield (junk) bonds best exemplify the principle that the greater the risk, the greater the potential reward.

Step-by-step explanation:

High-yield (junk) bonds best exemplify the principle that the greater the risk, the greater the potential reward. The term 'junk' refers to bonds that have a high risk of defaulting, meaning that the borrower may not be able to repay the bondholders.

However, these bonds also offer a higher yield or return to compensate for the increased risk. Investors who are willing to take on more risk by investing in these bonds have the potential to earn the higher returns.