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?

You should invest in a stock if the expected rate of return on an asset with similar risk is higher than the expected rate of return from the stock.

You should invest in a stock if the expected rate of return from the stock is greater than the expected rate of return on an asset with a similar risk.

Read the following descriptions and identify the type of risk or term being described:

Description

Terms

This type of risk relates to fluctuations in exchange rates.

This type of risk is inherent in a firm$$s operations.

A listing of each possible outcome and the probability of each outcome occurring.

The difference between the expected rate of return on a given risky asset and the expected rate of return on a less risky asset.

You invest $$100,000$ in only one stock. 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 lower$-$than$-$average expected rate of return given its perceived risk.

a higher$-$than$-$average expected rate of return given its perceived risk.