Question

Pro-future, Inc.

Sandy is a personal financial planner at Pro-future, Inc. Pro-future is a financial company that focuses on personal and business financing. When potential customers come to Sandy for financial advice, she first determines their investment goals in order to create a financial plan that fits their needs. Once she has created a suitable financial plan for a customer, Sandy gives her clients a pamphlet with suggestions for helping to accumulate the amount of money that they need.

Advice about risk is given to all of Sandys clients. Sandy also makes strategic financial plans for each of her customers, which helps them to track and achieve their financial goals.

Refer to Pro-future, Inc. Why would Sandy consider risk to be a good thing?

Select one:

a. The higher the risk, the higher the rate of investment.

b. The higher the risk, the larger the possible return.

c. The lower the risk, the lower the rate of investment.

d. The higher the risk, the lower the possible investment.

e. The lower the risk, the larger the possible return.

Answer 1

in the context of investment, risk can be defined as the variablity of return. the difference between actual outcome and expected outcome can be called as risk. In the given example, Sandy consider that there is a positive relation between the probability of risk and returns. i.e. if there is high risk, the probability of getting returns is high. if there is less risk, the probability of getting returns is low.

in this regards, investors prefers to go with if the higher the risk, the lower the possible investments, because the variablity of returns is high. Means the investor may or may not get the returns, hence they may prefer to go with certain and guaranteed returns than uncertain higher returns. In the area of investments it is a common question to all, some may go with higher the risk the lower the possible investment.

hence, the answer is option D.

If a statement is there that the hgiher the risk, the larger the possible returns, it does not mean that the investor gets higher returns with his invesments. the chances are there to get higher returns at the same time there are some problems also.