The statement that BEST describes the relative risk of two types of investment is <em>A) Hedge funds are riskier than bonds.</em>
Hedge funds are high-risk investments with the potential for huge financial <em>loss and gain</em>. Hedge funds aggregate funds from many investors and use the funds to buy derivatives like options and futures. They can also borrow funds to buy more financial assets for the purpose of increasing the potential returns. In the process, huge <em>losses</em> can be incurred.
On the other hand, Bonds are not high-risk investments, unlike hedge funds, unless they are junk bonds. They pay assured periodic returns in the form of interest and have defined maturity periods.
Thus, the best description of the relative risk of two types of investment is given by <em>statement A.</em>
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