3. THANKS

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. 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 higher expected rate of return than the others. S&P 500 companies that are considered to be riskier than the others will have a lower 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 problems caused by political instability. This type of risk is associated with how a firm is financed. A standard measure of the risk per unit of return. The difference between the expected rate of return on a given risky asset and the expected rate of return on a less risky asset. Risk premium 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? Stand-alone risk Portfolio risk Generally, investors would prefer to invest in assets that have: a high level of risk and low expected returns. O a low level of risk and high expected returns