Risk vs Reward

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Show your work for each problem.

1.
If an investment has high potential returns, what can you generally expect about its risk?
1. a)Risk is unrelated to return
2. b)No risk
3. c)High risk
4. d)Low risk
2.
If the potential gain on a trade is 200 dollars and the potential loss is 50 dollars, what is the risk-reward ratio? (Enter as a whole number)
3.
What does a higher standard deviation indicate about an investment?
1. a)More volatility (higher risk)
2. b)Higher guaranteed returns
3. c)Less volatility (lower risk)
4. d)Lower expected returns
4.
A stock has an expected return of 15% and a standard deviation of 25%. What is its risk-adjusted return ratio? (Round to 2 decimal places)
5.
You're comparing two investments. Investment X has a 10% expected return with 20% standard deviation. Investment Y has an 8% expected return with 10% standard deviation. Which has the better risk-adjusted return?
6.
A trader is considering a trade with a potential gain of 80 dollars and a potential loss of 40 dollars. What is the risk-reward ratio, and is this typically considered favorable?
1. a)2:1, No it's not favorable
2. b)2:1, Yes it's favorable
3. c)1:2, Yes it's favorable
4. d)1:2, No it's not favorable
7.
An investment has annual returns of 6%, 10%, 4%, 8%, and 12% over 5 years. What is the mean (average) return? (Enter as a percentage without the % sign)
8.
You buy a stock at 100 dollars, set a stop-loss at 90 dollars, and target a sale price of 130 dollars. Calculate the risk-reward ratio.
9.
Someone near retirement should typically prefer which type of investment?
1. a)Lower risk, lower return
2. b)Higher risk, higher return
3. c)Any investment is equally suitable
4. d)Only cryptocurrency
10.
Calculate the variance for these investment returns: 2%, 8%, 4%, 6%, 10%. The mean is 6%.
11.
If the variance is 8 (from the previous problem), what is the standard deviation? (Round to 2 decimal places)
12.
If someone promises you 50% annual returns with "zero risk," what should you think?
1. a)Risk and return are unrelated, so this is possible
2. b)It sounds like a great opportunity
3. c)Only moderately risky investments can have high returns
4. d)It's likely a scam - high returns always come with high risk
13.
Investment A: 12% return, 15% standard deviation. Investment B: 9% return, 6% standard deviation. Calculate the risk-adjusted return for each and determine which is better.
14.
What does volatility in investing refer to?
1. a)The total return of an investment
2. b)The company's profit margin
3. c)How much the price fluctuates over time
4. d)The minimum investment required
15.
A trade has a 60% chance of succeeding with a 100 dollar gain, and a 40% chance of failing with a 75 dollar loss. What is the expected value? (Enter as a number, positive or negative)
16.
An investment has returns of -5%, 12%, 8%, -2%, and 17% over 5 years. Calculate the mean return and determine if this investment is more or less volatile than one with a standard deviation of 10%.