risk 1c Harder

Why might an investor view risk as a strategic ally rather than an adversary?

• It eliminates the need for mitigation

• It provides the potential for higher returns when managed

• It ensures all investments are profitable

• It reduces the importance of cash flow

How does the absence of a universal risk measurement complicate investment decisions?

• It makes all investments equally risky

• It requires subjective evaluation tailored to each investor

• It eliminates the need for a risk premium

• It guarantees consistent returns across assets

What could lead an investor to prefer a 4% risk-free return over a 6% high-risk return?

• The risk premium is too high

• The risk premium doesn’t justify the additional uncertainty

• The risk-free asset has higher volatility

• The high-risk option lacks liquidity

Why might an efficient market reject an investment offering 15% returns with minimal risk?

• It aligns with typical risk/reward profiles

• It suggests hidden risks or misrepresentation

• It lacks sufficient cash flow

• It violates diversification principles

How does principal loss differ from underperformance in terms of portfolio impact?

• Principal loss reduces opportunity cost, while underperformance increases it

• Principal loss depletes capital, while underperformance limits growth potential

• Principal loss is temporary, while underperformance is permanent

• Principal loss affects liquidity, while underperformance affects debt

What subtle danger does inflation risk pose to an investor holding a low-yield bond?

• It increases the bond’s nominal value

• It erodes real returns even if nominal returns are positive

• It eliminates the bond’s liquidity

• It reduces the bond’s market risk

Why might real estate’s inflation risk be less severe than cash’s over a decade?

• Real estate is immune to inflation

• Real estate appreciates with inflation, while cash loses purchasing power

• Real estate avoids regulatory changes

• Real estate guarantees higher cash flow

How does market risk interact with debt risk in a rising interest rate environment?

• Market risk decreases as debt risk stabilizes

• Market risk increases property values, offsetting debt risk

• Market risk depresses values, amplifying debt repayment pressure

• Market risk eliminates the need for cash reserves

What overlooked factor might elevate property risk in a seemingly ideal investment?

• High cash flow potential

• Misalignment with local zoning laws discovered post-purchase

• Strong tenant demand

• Low material costs

How might operational risk compound income risk in a rental property?

• Poor management leads to vacancies, reducing revenue

• Efficient operations increase tenant turnover

• High operational costs eliminate debt risk

• Operational success reduces market volatility