Question

1. David recently received an inheritance, and he is planning to invest the inheritance in one of four stock portfolios. Which of these portfolios would you expect to have the highest risk?​

   	a.	​​A portfolio with an average annual rate of return of 10%.
   	b.	​​A portfolio with an average annual rate of return of 8%.
   	c.	​A portfolio with an average annual rate of return of 5%.
   	d.	​​A portfolio with an average annual rate of return of 14%.

Answer 1

A portfolio with an average annual rate of return of 14% has the highest risk.

Explanation:

By Definition, Higher hazard is related with higher likelihood of greater return and decrease threat with a larger chance of smaller return. This alternate off which an investor faces between danger and return whilst thinking about funding choices is known as the hazard return alternate off.

The portfolio in alternative d affords perfect common annual return so it has the perfect threat associated.