ECONOMICS
SAVING AND INVESTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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an investment that can change quickly without warning
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an investment that is fairly low risk
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an investment that requires a high volume of investors
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an investment that gains value slowly over time
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Detailed explanation-1: -Equity as an asset class is intrinsically volatile. However, there are periods where investors can face extreme volatility which can test their patience. We are going through such a period now and we do not know how long it will last. However, investors should understand the difference between risk and volatility.
Detailed explanation-2: -What is volatility? Volatility is an investment term that describes when a market or security experiences periods of unpredictable, and sometimes sharp, price movements. People often think about volatility only when prices fall, however volatility can also refer to sudden price rises too.
Detailed explanation-3: -Definition: It is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease.
Detailed explanation-4: -Sometimes prices move more quickly than at other times. The speed or degree of the price change (in either direction) is called volatility. As volatility increases, the potential to make more money quickly, also increases. The tradeoff is that higher volatility also means higher risk.