Part 2: Investments
Paper V — Investment-linked Long Term Insurance · Part 2: Investments
Further reading: Investments study notes →
Which of the following statements about Meaning of Investment Risk are correct? I. The variability or uncertainty of actual returns relative to expected returns II. The certainty of investment loss III. The possibility of market prices rising
Why: Investment risk refers to the variability between actual and expected returns, i.e., the uncertainty of returns. Risk does not necessarily mean loss; it also includes the possibility of returns exceeding expectations. The goal of risk management is to achieve the best possible return within an acceptable level of risk.
Which of the following is an example of systematic risk?
Why: Systematic risk (also called market risk) affects the entire market and cannot be eliminated through diversification. A global financial crisis is a systematic risk that impacts all asset classes. The other options are unsystematic risks (company-specific risks) that can be reduced through diversification.
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