The principle of risk-return trade-off means that Group of answer choices a rational investor will only take on higher risk if he expects a higher return. an investor who takes more risk will earn a higher return higher risk investments must earn higher returns an investor who bought stock in a small corporation five years ago has more money than an investor who bought U. S. Treasury bonds five years ago.

a rational investor will only take on higher risk if he expects a higher return.

Explanation:

Rate of return can be defined as the percentage of interest or dividends earned on money that is invested.

In Financial accounting, a return refers to the amount of profit generated by an investor on an investment over a specific period of time.

Basically, the rate of return which is typically expressed as a percentage of the initial costs of an investment can either be a gain or a loss on an investment. Therefore, a positive rate of return on an investment over a specific period of time, simply means that an investor is making a profit (gains) while a negative rate of return on an investment over a specific period of time, indicates that the investor is running at a loss.

Hence, the rate of return is used as a long-term decision-making tool to determine whether or not an investment is worth it.

Thus, the principle of risk-return trade-off means that a rational investor will only take on higher risk if he expects a higher return.

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