Final answer:
Investors generally expect a higher rate of return for higher-risk investments to compensate for the increased possibility of loss. The greater potential for return on such investments is necessary to attract investors who might otherwise avoid the higher risk, therefore option A) higher is the correct answer.
Step-by-step explanation:
Generally, the higher the risk of failure or loss in an industry, investors will expect a higher rate of return on the investment. This principle reflects the inherent tradeoff in the world of finance between risk and return. Higher risks are associated with the potential for higher returns to compensate for the increased likelihood of loss. For example, stock investments, which are considered higher risk, commonly offer the potential for higher returns to attract investors despite the volatility. Meanwhile, savings accounts offer much lower risk but also provide correspondingly lower returns.
Understanding this relationship is fundamental in making decisions about where to place capital. Investors need to weigh the expected returns against the potential risk and their own risk tolerance when choosing investment vehicles. Therefore, high-risk investments typically come with the expectation of higher returns to justify the possibility of losing some or all of the initial investment.