Skip to content

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

Which statement about the relationship between risk and return in investments is most accurate?

Higher expected return is generally associated with higher risk, because investors demand compensation for bearing uncertainty. Diversification reduces only company-specific risk and cannot remove market risk, and no safer asset always gives higher real returns than riskier ones.

  1. AHigher expected return is generally associated with higher riskCorrect
  2. BGovernment securities always give higher returns than equities
  3. CDiversification guarantees elimination of all risk
  4. DLower risk investments always give higher real returns

Explanation

The basic risk-return trade-off says investors need higher expected returns as compensation for taking more risk. Diversification reduces unsystematic risk but cannot remove market risk, and no asset class always outperforms another.

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