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?

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Business

Aurora Huerta

1 April, 03:58

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?

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Answers (1)

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Aubree Richmond · Answer 1

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.