Question

How does the relationship between risk and expected return serve to allocate capital in a market?

Answer 1

The relationship between risk and expected return serves to allocate capital in a market. Investors want to maximize return for a given level of risk, so capital flows to its most efficient use.

There is a positive correlation between the level of risk taken and the level of return expected. The greater the risk, the greater the expected return and the greater the likelihood of suffering a large loss.

The relationship between risk and expected return is called the risk-return relationship. This is a positive relationship because the more risk you take, the higher the required return that most people demand. Risk aversion describes a positive risk-reward ratio.

Learn more about risk and expected return at

brainly.com/question/25821437

#SPJ4