The Relationship Between Risk and Return Is Positive Because

question 6

Multiple Choice

The relationship between risk and return is positive because

• A) the longer the term of the investment, the more exposed it is to negative inflation effects.
• B) investors need to be compensated with additional return on investment to bear additional risk.
• C) not every investment has risk, so there is really no distinct relationship.
• D) Both A and B are correct.

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Definitions:

Labor-Intensive Commodities

Goods that require a higher proportion of labor in their production process compared to materials and capital.

Opportunity Cost

The value of the best alternative that must be forgone as a result of choosing a particular action or decision.

Law of Comparative Advantage

An economic principle stating that countries or individuals gain when they produce goods and services for which they have lower opportunity costs relative to others.

Low Opportunity Cost

A situation where the cost of forgoing the next best alternative is relatively minimal.