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    Question

    Which of the following will be the features of Zero

    Risk?                       I.        It does not have any uncertainty with it                     II.        There is no variation in net cash flow                    III.        Return on such investment would be higher
    A Only I Correct Answer Incorrect Answer
    B Only I and II Correct Answer Incorrect Answer
    C Only I and III Correct Answer Incorrect Answer
    D Only II and III Correct Answer Incorrect Answer
    E All of the above Correct Answer Incorrect Answer

    Solution

    Zero risk means there is no uncertainty associated and the cash flows are known with no probability of variation. Since the risk is not existent and cash flow or benefits are known, the returns are lower in such cases. For example, the return on  Government bond would be lower than that on a corporate bond due to negligible or no risk associated with Government bond. 

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