The basic trade-off in the investment process is
A) between the anticipated rate of return for a given investment instrument and its degree of risk.
B) between understanding the nature of a particular investment and having the opportunity to purchase it.
C) between high returns available on single instruments and the diversification of instruments into a portfolio.
D) between the desired level of investment and possessing the resources necessary to carry it out.
E) None of these are correct.

Question

Quizplus · Accepted Answer

The basic trade-off in the investment process is between the expected rate of return for a given investment instrument and its degree of risk. Investors usually expect higher returns from higher-risk investments, but these investments also have a greater potential for loss. Lower-risk investments typically have lower returns, but offer more stability and consistency. Therefore, the investor must weigh the potential risks and rewards of a particular investment before deciding to invest.

The Basic Trade-Off in the Investment Process Is