Question

When an investor was analyzing the risks in a property, he was considering an 8% return on his investment compared to a 10% return. In terms of the purchase price, what will happen?

Answer 1

Answer:

The higher the risk, the lower the purchase price.

Explanation:

The investment with higher risk should have lower purchase price. When an investment is more risky the rate of returns is higher, so a lower price will be paid for the 10% investment. This is done to balance the risk of loss.

The investment with lower risk and lower returns will carry higher purchase price because probability of loosing invested funds is low.