Research and discuss the relationship between financial decision making and the risk and return tradeoff. As you research this, consider the five important relationships in the valuation of an asset. Consider expected rate of return, realized rate of return, and required rate of return in your research and discussions.
1. What is the affect on return from inflation? Interest rates? Length of time to maturity or holding period?
2. What does this risk-return tradeoff mean to the financial management of a firm? What are the possible impacts on the firm? How can this impact the firm's decisions?
3. Is this rule followed by most firms most of the time? If so, how? Give some examples. If not, why not? Give some examples.
4. Are there areas where this rule might not be applicable? If so, in what industries/firms/product life cycles might this be applied? If not, why not?