General Education Development (GED) Practice Exam

Which of the following investors has the portfolio that is exposed to the greatest amount of risk?

1. Investor A

2. Investor B

3. Investor C

4. Investor D

The correct answer is: Investor A

To determine which investor has the portfolio exposed to the greatest amount of risk, one must consider various factors such as the types of assets held, the diversification of the portfolio, market volatility, and the potential for returns versus losses. The correct answer identifies Investor A as having the highest risk exposure, which could suggest that this investor has concentrated their portfolio in high-volatility stocks, perhaps in emerging markets or sectors that can fluctuate significantly. This level of concentration typically leads to greater susceptibility to market swings, which falls under high risk. Investor A's asset allocation may lack diversification, meaning that if one investment performs poorly, the overall portfolio will suffer substantially. Greater allocations towards aggressive growth stocks or commodities can further heighten risk exposure, making Investor A's portfolio more vulnerable during downturns. In contrast, other investors may possess more balanced or diversified portfolios that include a mix of asset classes — such as bonds, real estate, or stable stocks — which can mitigate overall risk through diversification. For instance, they might be holding a mix of higher-risk and lower-risk investments, distributing their exposure and helping to insulate against extreme losses. Therefore, while Investor A's portfolio is subjected to high risk, other investors are likely managing their exposure more effectively, leading to lower