Risk is the potential for an investment to generate more than one retum. A security that will produce only one known retum is referred to as a riskfree 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:

Description

Terms

This type of risk relates to problems caused by political instability.

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

A measure of the variability of a set of outcomes.

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

expected rate of return on a less risky asset.