Question

The goal of a rational, wealth-maximizing investor in developing a portfolio is to maximize the ___ and minimize the ____.

a) Risk; Return
b) Return; Risk
c) Volatility; Profit
d) Profit; Volatility

Answer 1

A rational, wealth-maximizing investor aims to maximize return and minimize risk, balancing the tradeoff between the potential for high profits and the risk of losses.

Step-by-step explanation:

The goal of a rational, wealth-maximizing investor in developing a portfolio is to maximize the return and minimize the risk. This reflects the basic principle that investors aim for the highest possible profit while endeavoring to reduce their exposure to potential losses. The tradeoff between return and risk is a fundamental concept in finance, which acknowledges that higher returns usually come with higher risk, and vice versa.