1. Stock prices and stand-alone risk Risk is the potential for an investment to generate more than one return. A security that will produce only one known return is referred to as a risk- free asset, as there is no potential for deviation from the known expected outcome. Investments that have the chance of producing more than one possible outcome are called risky assets. Risk, or potential variability in an investment's possible returns, occurs when there is uncertainty about an investment's future outcome, such as the return expected to be generated by the investment and realized by an investor. As an investor and based on your understanding of risk, which of the following statements is true? S&P 500 companies that are considered to be riskier than the others will have a lower expected rate of return than the others. S&P 500 companies that are considered to be riskier than the others will have a higher expected rate of return than the others. Read the following descriptions and identify the type of risk or term being described: Terms Description This type of risk relates to changes in the interest rate. This type of risk relates to the possibility that a firm will not be able to service its existing debt. A measure of the variability of a set of outcomes. This can be used to reduce the stand-alone risk of an investment by combining it with other investments in a portfolio. You invest $100,000 in 40 stocks, 20 bonds, and a certificate of deposit (CD). What kind of risk will you primarily be exposed to? Portfolio risk Stand-alone risk Generally, investors would prefer to invest in assets that have: a low level of risk and high expected returns. O a high level of risk and low expected returns