What factors affect investment risk?

Investment risk is fundamentally influenced by a variety of factors that can impact the performance and stability of an investment. Among these, volatility, economic conditions, and interest rates play crucial roles.

Volatility refers to the degree of variation in the price of a financial asset over time. Higher volatility indicates a larger potential for price swings, which can lead to greater investment risks. Economic conditions encompass factors such as growth rates, unemployment levels, and overall economic stability. These elements directly affect investor confidence and market performance. Interest rates are equally vital; they influence borrowing costs, consumer spending, and can significantly affect investment returns. As interest rates rise, borrowing becomes more expensive, which can slow down economic activity and impact stock prices and investment valuations.

Understanding these factors is essential for managing investment risk effectively, as they provide insights into market behavior and potential future performance. This makes option B the most comprehensive and relevant choice regarding factors affecting investment risk.