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The lesson positions the relationship between risk and return as a central concept in financial management. Which statement best captures the risk-return relationship as described in the lesson?
Answer & Solution
Correct answer: B.
1. The lesson sets out the risk-return trade-off.
2. Risk and expected return move in tandem.
3. The greater the risk taken, the greater would be the expected return demanded by investors.
4. An investor in risk-free government bonds expects a lower return than an investor in shares.
5. The other statements misstate the relationship.
_Source: ICSI CS Executive Paper 8 (Financial and Strategic Management) — Lesson 1: Nature, Significance and Scope of Financial Management, pp. 6-20._
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