Utah Financial Literacy State Practice Test 2026 - Free Financial Literacy Practice Questions and Study Guide

The expected value of return on an investment is primarily influenced by the degree of risk involved. When considering an investment, investors evaluate the potential risks associated with it, as higher risks usually come with the potential for higher returns. Conversely, investments that are deemed to be safer, such as government bonds, typically offer lower returns because the risk of losing the principal is minimal.

Understanding this risk-return relationship is crucial for making informed investment decisions. For instance, before investing in stocks or real estate, an investor assesses the volatility and uncertainties related to those assets. This assessment helps in estimating the expected return based on the balance between risk and potential reward.

In contrast, factors such as the location of purchase, the investor's age, and the time of year the investment is made may influence an investor's choices or strategies but do not fundamentally alter the inherent expected return tied to the risk associated with that investment. Thus, the degree of risk is the key factor in understanding and calculating the expected value of return on an investment.