Question

Which of the following statements about the relationship between the risks and returns of investments are correct? Select all that apply.

Answer 1

The correct answer would be option B and C.

Generally, the higher the potential return that an investment offers, the higher the risk associated with the investment.

Generally, the lower the potential return that an investment offers, the lower the risk associated with the investment.

Explanation:

There is a direct relationship between Risk and Returns. This phrase is quite commonly used by the accounting and finance related people, that 'High Risk, High Return, Low Risk, Low Return'.

It is quite true. We can take an example of high risk investments like stocks. If a person invests heavily in foreign exchange market in stocks, the risk of investment is too high, but at the same time, the person is able to get high returns on his investments in a short period of time.

Similarly, is a person invests in a bonds, there is low or no risk associated with this type of investment. So the return is also low for such investments.

So if a person is a risk taker, he can enjoy considerable returns as well, and vice versa.

Learn more about risk and return relationship at:

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