Question

2. Stock prices and stand-alone risk You invest $100,000 in 40 stocks, 20 bonds, and a certificate of deposit (CD). 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 high level of risk and low expected returns A low level of risk and high expected returns

Answer 1

Question 1: You are exposed to Portfolio risk.

Reason: A portfolio risk occurs when the investor puts his money in an array of investment options such as stocks, bonds and deposits. In this case the investor has invested in multiple types of securities hence, it is a portfolio risk.

Question 2: A low level of risk and high expected return.

Reason : An investor will usually have a low appetite for risk and would not to loose his money . At the same time he wants the highest return for his money taking opportunity cost in to consideration.