Individual stocks are popular investments that are easy to sell and have the potential to earn significant income for investors. However, they fluctuate wildly in price, increasing the likelihood that an investment fails. What is the risk, return, and liquidity on this type of investment?(1 point)
Responses
low risk, low return, and poor liquidity.
low risk, low return, and poor liquidity.
high risk, high return, and good liquidity.
high risk, high return, and good liquidity.
high risk, high return, and poor liquidity.
high risk, high return, and poor liquidity.
low risk, high return, and good liquidity.
high risk, high return, and poor liquidity.
The correct response is: high risk, high return, and poor liquidity.
The correct answer is: high risk, high return, and poor liquidity.
Explanation:
When it comes to individual stocks, they are considered high-risk investments because their prices can fluctuate wildly. This means that there is a higher chance of losing money compared to more stable investments. On the other hand, the potential return (income or profit) from investing in individual stocks is also high because if the stock performs well, the investor can earn significant income.
In terms of liquidity, individual stocks are generally considered to have poor liquidity. Liquidity refers to how easily you can buy or sell an investment without significantly impacting its price. In the case of individual stocks, there might be limited buyers or sellers at any given time, which can make it difficult to quickly sell your shares if needed.
Therefore, the risk is high due to the price volatility, the potential return is also high if the investment is successful, but the liquidity is poor, making it challenging to quickly sell the stocks.