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What is the relationship between risk and expected return? How does it affect investment decisions?


What is the relationship between risk and expected return? How does it affect investment decisions?

Investments have various levels of risk. You would only accept high levels of risk with the expectation of high returns. For example, if you were to buy a highly volatile stock you would hope to achieve a better than average return for accepting that volatility. Risk can lead to negative returns whereas low risk lead to low (but positive) returns.

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