Option a.) Higher risk is the correct answer, because higher risk leads to lower cost of capital. The higher the risk of an investment, the higher the return potential.
In theory, on average, the higher the risk, the more money you get to hold your investment, and the lower the risk, the less money you get. For investment securities, you can create charts showing different types of securities and their associated risk/reward profiles. Risky investments may offer higher return opportunities than others, but they put your money at greater risk. This means that risky assets can generate large returns if things go well. But if things go wrong, you could lose all your invested money.
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