Which statement best describes the relative risk of two types of investment?A.Savings accounts are riskier than certificates of deposit.B.Mutual funds are riskier than individual retirement accounts.C.Certificates of deposit are riskier than hedge funds.D.Bonds are riskier than stocks.
Question
Which statement best describes the relative risk of two types of investment?A.Savings accounts are riskier than certificates of deposit.B.Mutual funds are riskier than individual retirement accounts.C.Certificates of deposit are riskier than hedge funds.D.Bonds are riskier than stocks.
Solution
B. Mutual funds are riskier than individual retirement accounts.
This statement best describes the relative risk of two types of investment. Here's why:
A. Savings accounts and certificates of deposit (CDs) are both considered low-risk investments. However, CDs are typically less liquid than savings accounts, which could be considered a form of risk.
B. Mutual funds can be riskier than individual retirement accounts (IRAs) because the risk of a mutual fund depends on the specific investments it holds. IRAs, on the other hand, are types of accounts that can hold a variety of investments, including mutual funds. The risk of an IRA therefore depends on the specific investments chosen.
C. Certificates of deposit are generally considered low-risk investments, while hedge funds are typically considered high-risk due to their aggressive investment strategies.
D. Stocks are generally considered riskier than bonds. Stocks represent ownership in a company and their value can fluctuate significantly, while bonds are a form of debt that pay interest over time and have a fixed return at maturity.
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