Question

What is the relationship between risk and return?

A higher risk often means a higher return.
A lower risk always means a higher return.
A higher risk often means a lower return.
A lower risk will always mean a lower return.

Answer 1

A higher risk often means a higher return.

Explanation: In investing, there's a risk–return tradeoff — investors typically demand higher expected returns to compensate for taking on higher risk. This is about expected/average returns, not a guarantee: higher risk can also lead to larger losses.