3. 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. Generally, investors would prefer to invest in assets that have: A lower-than-average expected rate of return given its perceived risk OA hoher-thanr averagenls perceived isk Read the following descriptions and identify the type of risk or term being described: Description Terms This type of risk relates to the possibility that a firm will not be able to service its existing debt This can be used to reduce the stand-alone risk of an investment by combining it with other investments in a portfolio A measure of the variability of a set of outcomes This type of risk relates to fluctuations in exchange rates