The principle of finance that " higher returns are expected for taking on less risk " implies that rational investors would choose only safe investment because they generally do not feel that a higher return enough to justify taking greater risk.

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The principle of finance actually implies that investors would be willing to take on more risk in order to achieve higher returns, but they would still demand compensation (in the form of higher returns) for the additional risk they are taking on. So, rational investors would not necessarily choose only safe investments, but they would carefully assess the risks and potential returns of different investments before making a decision.

The Principle of Finance That " Higher Returns Are Expected