Question

Which of the following is true of risk and expected returns? If two investments have the same expected return, investors prefer the riskier alternative. The expected return on an investment is independent of the associated risk. Higher the risk, higher the expected returns on an investment. The expected return on an investment is inversely proportional to the associated risk.

Answer 1

Higher the risk, higher the expected returns on an investment.

Step-by-step explanation:

Generally speaking when investments are made the higher the risk, the higher the returns, and also the lower the risk the lower the returns.

For example shares are a low risk investment and they have low returns mostly in cents to the dollar.

However an investment like trading speculatively in the forex market has high returns where you can double or triple investment. Investors are also likely to lose all invested capital.