In terms of interest rates, how is risk typically viewed by lenders?

When lenders assess the risk associated with a borrower or investment, they typically associate higher levels of risk with higher interest rates. This relationship is based on the principle of risk management in finance.

Lenders seek to compensate themselves for the uncertainty involved in lending. The greater the risk of default by the borrower—meaning there's a higher chance they won't be able to repay the loan—the more interest the lender will charge. This additional interest serves as a risk premium, which provides a cushion for the lender against potential losses.

In a practical context, this principle is evident in various financial products. For example, borrowers with poor credit histories or those seeking unsecured loans generally face higher interest rates compared to those with strong credit scores and secured loans. This reflects the lender's assessment that there is a greater likelihood of the former group defaulting on their obligations. Therefore, option B accurately captures the relationship between risk and interest rates in lending practices.