Question

Which basic principle of finance correctly describes the following​ statement: ​ "We won't take on additional risk unless we expect to be compensated with additional​ return"? ​(Select the best choice​ below.)

A.Principle​ 1: Money has a time value.
B.Principle​ 2: There is a​ risk-return tradeoff.
C.Principle​ 3: Cash flows are the source of value.
D.Principle​ 4: Market prices reflect information.

Answer 1

Principle 2: There is a risk-return tradeoff.

Step-by-step explanation:

The basic principle of finance that correctly describes the statement 'We won't take on additional risk unless we expect to be compensated with additional return' is Principle 2: There is a risk-return tradeoff.

This principle states that investors are willing to accept higher levels of risk only if they believe they will receive greater returns.

For example, an investor may choose to invest in stocks instead of bonds because stocks have a higher potential return, but also a higher level of risk.