Which type of investment would a person with a high risk tolerance likely choose?

• A. Stocks in emerging markets
• B. Government bonds
• C. Certificates of deposit (CDs)
• D. Savings account

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of risk tolerance, which refers to an individual's willingness and ability to endure fluctuations in the value of their investments without panic or selling at a loss.
2. Step 2: Recognize that investments vary in risk levels: government bonds, certificates of deposit (CDs), and savings accounts are generally considered low-risk, while stocks, especially in emerging markets, are higher risk due to market volatility and economic uncertainties.
3. Step 3: Identify that a person with high risk tolerance is more comfortable with investments that have higher potential returns but also higher chances of loss, such as stocks in emerging markets.
4. Step 4: Compare the options: government bonds, CDs, and savings accounts offer more security and lower returns, suitable for low risk tolerance; stocks in emerging markets offer higher risk and potentially higher returns, suitable for high risk tolerance.
5. Step 5: Conclude that the investment choice aligning with high risk tolerance is stocks in emerging markets, as they match the investor's willingness to accept greater risk for the possibility of higher returns.