How is the potential rate of return on investments related to the level of risk?

Potential rate of return on investments and the level of risk are directly correlated. In general, if the level of risk of investment increases, the amount of potential return increases as well. As investors move up on the 'pyramid of investment risk' the chances of losing increase along with the amount of potential return.

Higher risk investments have a higher potential return.

Explanation:

Because if investors invest more things, they could potentially get more funds returned back to them as time goes.