Question

Is it possible to earn a return of 8% with risk of 9%? Be sure to show why or why not.

Answer 1

Yes, it is possible to earn return of 8% with the risk of 9% because higher amount of risk will not be providing you with the certainty of higher amount of Return,because it is always a probability that higher amount of risk will be leading to a higher amount of Return so one should be not always assyred that higher amount of risk will always lead to higher amount of Return, because it can be seen that if an investor has taken position at the time of the coronavirus crisis with the risk appetite of 8% on the long side of the stock index for a shorter period of time, then he would have lost almost 50% of its investment value within a span of 10 days because the market has fallen like a rocket on the downside so it can lead to a lot of loss of Return because higher amount of risk cannot assure you with higher amount of Return.