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I have read in notes (page 32) that if risk is lower so cost are lower too. I am unable to understand how. Help professor.
It’s really explained in the paragraph. If you were going to invest in a risky company you would expect a higher return than if you were to invest in a safe company. Why else would you subject your savings to a higher chance of being lost?
Similarly, if a company has a careless record (eg, it has broken laws several times) it could be that financial authorities decide to monitor it more closely (likely to involve employees’ time) and that insurance is probably more expensive.
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