Risk and Return

What rule is important to remember when evaluating risk and return?

The higher the risk, the higher the potential return.

The higher the risk, the lower the potential return.

The lower the risk, the higher the potential return.

There is no connection between risk and return.

The higher the risk, the higher the potential return.

Explanation:

In investing money or some starting some project, the risk is the important factor. As the risk is high, the potential return is also high.

For Example:

If someone has money, he did not invest it anywhere and save it in home or bank, there is very low risk of loosing money, as there is low risk of loosing at the same time there is no chance to increase in that money, so the risk is low, the lower the potential return.

If someone invest this amount with the bank with fix profit, the risk is limited which also lead to limited increase in income.

If someone invest the money in high risk projects or buying shares, this will increase the risk of loosing money as well as handsome profit can be possible.