Which statement is true regarding the relationship between investment risk and reward?

The statement that higher risk usually indicates the possibility of higher returns, but with no guarantees, reflects a fundamental principle of investing. In financial markets, there is a general understanding that taking on greater risk can potentially lead to higher returns. This is because investments that exhibit more volatility or uncertainty often have the potential for more substantial gains compared to more stable, lower-risk investments.

However, it's crucial to note that this relationship is not one of certainty; higher risk does not guarantee higher returns. In fact, many high-risk investments can lead to losses, emphasizing that investors should be aware of the trade-off between risk and potential return. This principle encourages investors to assess their risk tolerance and investment goals critically.

In contrast, the other statements misrepresent the risk-reward dynamic. The idea that higher risk always ensures higher returns is misleading because the market can behave unpredictably. The suggestion that lower risk is preferable for maximizing rewards ignores the reality that lower-risk investments typically yield lower returns. Lastly, stating that investment risks do not affect potential returns is incorrect, as the level of risk associated with an investment directly influences its expected returns. Thus, recognizing the nuanced relationship between risk and reward is essential in making informed investment decisions.