True or False: One of the fundamental principles of finance is that risk and expected return are positively related.

The statement is true because one of the core principles of finance is the risk-return tradeoff, which asserts that higher levels of risk are associated with higher potential returns. This relationship is based on the premise that investors require additional compensation for taking on more risk.

In the case of investments, assets that are perceived to be riskier, such as stocks or high-yield bonds, typically offer higher expected returns compared to safer assets like government bonds or savings accounts. This principle is foundational in the fields of investment analysis and portfolio management, as it guides investors in assessing the potential rewards of their investment choices relative to the risks they are willing to undertake.

Understanding this relationship is crucial for making informed investment decisions and effectively managing a portfolio, as it highlights the need for a balance between risk and desired outcomes. The correct answer reflects the general understanding that, empirically and theoretically, a positive correlation exists between risk and expected return.