Risk/Return: The higher the risk taken, the higher the return will need to be, for the risk to be valuable. For example, lending money to a startup will carry a higher interest rate than lending to the UK government.
Liquidity/Return: The lower the liquidity, the higher the expected return. If your money is going to be tied up for longer, the higher the return should be to justify the incurred risk & opportunity cost. The risk is that, during that time, the money will be needed but not available. For example, a bank offering mortgages is taking a risk that they will need the money before the end of the 30 year period, but won’t be able to access it. The opportunity cost is that, during the longer period, higher return investments might arise. For example, interest rates might rise while your money is tied up in a lower return investment.
