Question

what are risks and return in finance and how are they related

Answer 1

Risk and return are positively correlated with each other and then have a linear relationship. Higher the risk, higher the return. Lower the risk, lower the return. This is true if the holding period is of long term.

Example: An individual who invests in equity as an asset class will make higher returns in the long term due to the inherent higher risks. On the other hand, an individual who invests in bonds or CDs will make lower returns in the long term due to lower risk in the safe assets