MANAGEMENT

Detailed explanation-1: -What is Risk-Return Tradeoff? The risk-return tradeoff states that the potential return rises with an increase in risk. Using this principle, individuals associate low levels of uncertainty with low potential returns, and high levels of uncertainty or risk with high potential returns.

Detailed explanation-2: -The risk-return trade-off states that the level of return to be earned from an investment should increase as the level of risk goes up. Conversely, this means that investors will be less likely to pay a high price for investments that have a low risk level, such as high-grade corporate or government bonds.

Detailed explanation-3: -Therefore, risk return trade off means that the potential of generating return increases with an increase in risk. An appropriate risk return trade-off depends on factors like an investor’s risk tolerance level, investment duration and the potential to replace lost funds.