ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -All investments involve some degree of risk. In finance, risk refers to the degree of uncertainty and/or potential financial loss inherent in an investment decision. In general, as investment risks rise, investors seek higher returns to compensate themselves for taking such risks.

Detailed explanation-2: -Risk is an important component in assessment of the prospects of an investment. Most investors while making an investment consider less risk as favorable. The lesser the investment risk, more lucrative is the investment. However, the thumb rule is the higher the risk, the better the return.

Detailed explanation-3: -All investments carry some degree of risk. Stocks, bonds, mutual funds and exchange-traded funds can lose value-even their entire value-if market conditions sour. Even conservative, insured investments, such as certificates of deposit (CDs) issued by a bank or credit union, come with inflation risk.

Detailed explanation-4: -Risk measures are also major components in modern portfolio theory (MPT), a standard financial methodology for assessing investment performance. The five principal risk measures include the alpha, beta, R-squared, standard deviation, and Sharpe ratio.

Detailed explanation-5: -The highest risk investments are cryptocurrency, individual stocks, private companies, peer-to-peer lending, hedge funds and private equity funds.