Skip to content

NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Investment Landscape

Which statement about the relationship between risk and return across asset classes is most accurate?

Assets offering higher expected returns generally carry higher risk, because investors need compensation for bearing greater uncertainty. This risk-return trade-off is a core principle of investing. It does not guarantee outperformance in every period, and diversification is used to reduce, not raise, overall portfolio risk.

  1. AAssets with higher expected returns generally carry higher risk, because investors demand compensation for bearing uncertaintyCorrect
  2. BGovernment bonds always give higher returns than equity over every holding period
  3. CDiversification across asset classes raises the risk of the portfolio
  4. DRisk and return are unrelated once the holding period exceeds one year

Explanation

The risk-return trade-off says higher expected return is associated with higher risk. Equity does not always beat bonds in every period, diversification aims to reduce portfolio risk, and the relationship does not vanish with longer holding periods.

Did you get it right without looking?

One question tells you little. A timed set on Investment Landscape shows your real accuracy, how long you take and where you lose marks.

Practise Investment LandscapeFree diagnostic mock

More Investment Landscape questions