Proper risk-return management means that
A) the firm should take as few risks as possible.
B) the firm must determine an appropriate trade-off between risk and return.
C) the firm should earn the highest return possible.
D) the firm should value future profits more highly than current profits.

Question

Quizplus · Accepted Answer

Proper risk-return management means that the firm needs to balance the level of risk that it is willing to take against the potential returns. Thus, the firm must determine an appropriate trade-off between risk and return, which would help it to maximize its profits while minimizing the exposure to risk. Simply earning the highest return possible without considering the level of risk involved would not be a prudent approach, and valuing future profits more highly than current profits could lead to poor decision-making in the present. Therefore, option B is the right choice.

Proper Risk-Return Management Means That