What does the risk-return tradeoff imply?

The risk-return tradeoff is a fundamental concept in finance which suggests that potential returns on an investment increase with the level of risk taken. This means that investors who are willing to assume greater risks generally expect to receive higher returns on their investments as compensation for that risk. Essentially, it reflects the idea that risk is a key determinant of the returns that can be earned.

In practical terms, lower-risk investments typically provide lower potential returns, as seen in government bonds compared to stocks. Therefore, by embracing higher risk through investments in volatile assets or entrepreneurial ventures, investors position themselves for the possibility of achieving higher rewards. Thus, option C accurately captures the essence of the risk-return tradeoff, indicating that a deliberate increase in risk can lead to higher returns, aligning with the behaviors and expectations of investors.

The other choices do not accurately represent this fundamental relationship; for instance, lower risk does not lead to higher returns, as stated in one option, and expected returns are not always guaranteed, nor is timeframe irrelevant to assessing risk.