The principle of risk−return tradeoff means that

  • a. Higher risk investments must earn higher returns
  • b. An investor who bought stock in a small corporation five years ago has more money than an investor who bought U.S. Treasury bonds five years ago
  • c. A rational investor will only take on higher risk if he expects a higher return
  • d. An investor who takes more risk will earn a higher return
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Principle of risk−return tradeoff states that one expects higher return with higher risk. Option C is the correct answer. This lecture on risk and return take a deep look on topic.
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