Which of the following is true of risk-return trade off?
A) Risk can be measured on the basis of variability of return.
B) Risk and return are inversely proportional to each other.
C) T-bills are more riskier than equity due to imbalances in government policies.
D) Riskier investments tend to have lower returns.

Question

Quizplus · Accepted Answer

Risk can be measured based on the variability of return. The greater the variability in returns, the greater the risk. The trade-off between risk and return suggests that investors must be compensated for taking on additional risk by the possibility of higher returns. As a result, riskier investments tend to have higher potential returns than less risky investments. Choices B and D are incorrect as they present an overly generalized or incorrect statement. Choice C is incorrect as T-bills are considered low-risk investments, and it is not related to imbalances in government policies.

Which of the Following Is True of Risk-Return Trade Off