ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The risk-return tradeoff is an investment principle that indicates that the higher the risk, the higher the potential reward. To calculate an appropriate risk-return tradeoff, investors must consider many factors, including overall risk tolerance, the potential to replace lost funds and more.

Detailed explanation-2: -The risk-reward ratio is a measure of potential profit to potential loss for a given investment or project. A higher risk-reward ratio is generally preferable because it offers the potential for a greater return on investment without undue risk-taking.

Detailed explanation-3: -The risk-return tradeoff states the higher the risk, the higher the reward-and vice versa. Using this principle, low levels of uncertainty (risk) are associated with low potential returns and high levels of uncertainty with high potential returns.

Detailed explanation-4: -For example, treasury bills which has zero to minimal risks but would only yield slightly better interest than savings account. However, if the investor willingly risk and put greater amount money for the possibility of better returns then the risk associated with it would also be higher.

Detailed explanation-5: -First is the principle that risk and return are directly related. The greater the risk that an investment may lose money, the greater its potential for providing a substantial return. By the same token, the smaller the risk an investment poses, the smaller the potential return it will provide.