The fact that higher returns are associated with higher standard deviation is known as the:
A) Real return factor
B) Geometric relationship
C) Risk-return tradeoff
D) Market variance
E) Market capitalization

Question

Quizplus · Accepted Answer

The risk-return tradeoff is a fundamental principle of finance that states that the potential return of an investment is directly related to the level of risk assumed to attain that return. The higher the potential return, the higher the risk of the investment. Standard deviation is typically used as a measure of risk, and it indicates the degree of variation of returns around the mean return. Therefore, as standard deviation increases, so does the level of risk and potential return, resulting in the risk-return tradeoff.

The Fact That Higher Returns Are Associated with Higher Standard