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Ch.1 · Comparing Financial Products · medium

Which of the following correctly ranks investment alternatives from LOWEST to HIGHEST risk?

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EXPLANATION

PPF (sovereign guarantee, fixed return) is lowest risk. Bank FDs (DICGC insured, fixed return) are slightly higher risk. Debt mutual funds carry interest rate and credit risk. Equity has the highest risk due to market volatility.

A.Equity → Debt MF → PPF → Gold

B.Debt MF → PPF → Gold → Equity

C.Gold → PPF → Equity → Bank FD

D.PPF → Bank FD → Debt MF → Equity [✓ Correct]

EXPLANATION

PPF (sovereign guarantee, fixed return) is lowest risk. Bank FDs (DICGC insured, fixed return) are slightly higher risk. Debt mutual funds carry interest rate and credit risk. Equity has the highest risk due to market volatility.

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