Explain the risk-return relationship, Financial Management

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Explain the risk-return relationship.

The relationship among risk and required rate of return is known as the risk-return relationship. It is a positive relationship for the reason that the more risk assumed, the higher the necessary rate of return most people will demand.

Risk aversion illustrates the positive risk-return relationship. It describes why risky junk bonds hold a higher market interest rate than essentially risk-free U.S. Treasury bonds.

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