What is meant by the risk-return trade-off? What is the risk-free rate of return?
From your instructor: Risk can be defined in many ways and means different things to all of us. We think that risk is correlated to return and obviously there is a strong link, but many times it is not that simple. As you look at this question I recommend you think outside the box. Conventionally the risk return trade off is defined as the more risk you take, the more return you can expect. We will look at some instances where this is not the case. We will also look at ways to mitigate risk based on concepts like diversification.