4. Share prices and stand alone risk Aa Aa 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 realised by an investor Generally, investors would prefer to invest in assets that have: O A higher-than-average expected rate of return given its perceived risk O A lower-than-average expected rate of return given its perceived risk Read the following descriptions and identify the type of risk or term being described: Description Terms This can be used to reduce the unsystematic risk of an investment by combining it with other investments in a portfolio A standard measure of the risk per unit of return This type of risk relates to fluctuations in exchange rates This type of risk relates to the possibility that a company will not be able to service its existing debt [ You invest $100,000 in 40 shares, 20 bonds, and a certificate of deposit (CD). What kind of risk will you primarily be exposed to? O Unsystematic risk Portfolio risk 4. Share prices and stand alone risk Aa Aa 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 realised by an investor. Generally, investors would prefer to invest in assets that have: O A higher-than-average expected rate of return given its perceived risk A lower-than-average expected rate of return given its perceived risk Read the following descriptions and identify the type of risk or term being described Description Terms This can be used to reduce the unsystematic risk of an investment by combining it with other investments in a portfolio A standard measure of the risk per unit of return This type of risk relates to fluctuations in exchange rates This type of risk relates to the possibility that a company will not be able toUnsystematic risk service its existing debt Risk premium Probability distribution Systematic risk You invest $100,000 in 40 shares, 20 bonds, and a certificate of deposit (CD). What kind of risk will you primarily be exposed to? Unsystematic risk Portfolio risk
