NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Investment Landscape
Which statement about the relationship between risk and return across investment avenues is most accurate?
Higher expected return usually comes with higher risk. This is the risk-return trade-off: investors must be compensated with potentially higher returns for accepting greater uncertainty, while safer instruments such as government-backed ones normally offer lower returns.
- AHigher expected return usually comes with higher riskCorrect
- BGovernment-backed instruments always give the highest returns
- CEquity has no risk over any holding period
- DLower risk investments always give higher inflation-adjusted returns
Explanation
The risk-return trade-off holds that investors need higher expected returns to accept higher risk. The other statements are incorrect because safe instruments typically give lower returns and equity carries risk in all periods.
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