Multiple Choice QuestionThe potential return on an investment should be:Multiple choice question.statistically horizontal to the risk assumed.inversely related to the risk assumed.proportionally inverse to the risk assumed.directly related to the risk assumed.
Question
Multiple Choice QuestionThe potential return on an investment should be:Multiple choice question.statistically horizontal to the risk assumed.inversely related to the risk assumed.proportionally inverse to the risk assumed.directly related to the risk assumed.
Solution
The correct answer is: directly related to the risk assumed.
This is because in finance, there is a fundamental principle known as the risk-return tradeoff, which states that the potential return on an investment increases with the level of risk associated with it. This means that if an investor is willing to accept a higher level of risk, they potentially could receive higher returns. Conversely, if an investor wants lower risk, they must also accept potentially lower returns. Therefore, the potential return on an investment should be directly related to the risk assumed.
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