Ace the 2026 Certified Treasury Pro Test – Cash In on Your Future Brilliance!

Question: 1 / 400

What does the risk-return tradeoff principle state?

Higher risk guarantees a higher return

Potential return rises with an increase in risk

The risk-return tradeoff principle articulates the fundamental relationship between the potential return on an investment and the risk associated with that investment. Specifically, it states that as the level of risk increases, so does the potential for higher returns. This is grounded in the understanding that investors typically expect to receive greater rewards for taking on increased risk. For example, investments in stocks generally present higher risk than bonds, but they also offer the potential for higher returns over the long term.

This principle is crucial for investment strategy and decision-making, as it helps investors align their risk tolerance with their investment goals. Understanding that not all higher-risk investments will guarantee higher returns, investors can make more informed choices by balancing their portfolio between risky and safer assets to achieve their desired financial outcome.

Get further explanation with Examzify DeepDiveBeta

Mandatory investments should never involve risk

Low-risk investments yield no returns

Next Question

Report this question

Download Certified Treasury Professional Practice Exam PDF Study Guide
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy