The correct answer is: D. Optimization of Risk.
Risk-return trade-off is a concept in finance that states that investors must accept a certain level of risk in order to earn a higher return. The higher the risk, the higher the potential return. However, there is no guarantee that an investor will earn a higher return by taking on more risk. In fact, they may lose money.
There are a number of ways to manage risk. One way is to diversify your portfolio. This means investing in a variety of different assets, such as stocks, bonds, and real estate. This will help to reduce your overall risk. Another way to manage risk is to use hedging strategies. Hedging is a technique that involves taking an offsetting position in another asset in order to reduce your risk.
The risk-return trade-off is an important concept for investors to understand. It is important to remember that there is no such thing as a risk-free investment. All investments carry some degree of risk. The key is to find investments that offer a good balance of risk and return.
Here is a brief explanation of each option:
- A. Minimization of Risk: This is not the correct answer because it is not possible to eliminate all risk from investing. All investments carry some degree of risk.
- B. Maximization of Risk: This is also not the correct answer because it is not advisable to take on too much risk. Doing so could lead to losses.
- C. Ignorance of Risk: This is not the correct answer because it is important to be aware of the risks involved in investing. Ignoring risk could lead to losses.
- D. Optimization of Risk: This is the correct answer because it is important to find investments that offer a good balance of risk and return.