the return from an investment cannot be through without the risk factors. since the future is uncertain, there is always a change that the returns will be either more or less than anticipated. ther greater the variation in returns the great the involvement of the risk factors,. the terms risk an uncertainty are often used synonymously.however there is difference between two uncertainty is the case when the decision maker knows all the possible outcomes. risk is related to a situation in which the decision maker knows the probabilities of the various outcomes. therefore the risk is a quantifiable uncertainly. the degree of risk may be lower for the conservative financial manager and it is higher for an aggressive financial manager. risk needs to be measured in an objective way in order to know whether it justifies a specific rate of return. an investors requires a higher return from a risky project in order to compensate for the risk. the main aim is to maximize the returns with a given level of risk or to minimize the risk with a given level return. therefore, for this purpose that returns and risks need to be measured.
investors purchase financial assets such as shares or bonds because they desire to increase their wealth, i.e., earn a positive rate of return in their investment, the future is uncertain, investors do not know what rate of return their investments will realize. in finance we assume that individuals base their decisions on what they expect to happen and their assessment of how likely it is that actually occurs will be close to what they expected to happen. when evaluating potential investment in financial assets, these two dimensions of the decision making process is called expected return and risk.
there is the relationship between expected return and the expected level of associated risk. the nature of the relationship is that as the level of expected risk increases, the level of expected return also increase, the opposite is true as well lower levels of expected risk are associated with lower expected returns. this risk-return relationship is characterized as being a direct relationship or a positive relationship this risk-return relationship is characterized as being a direct relationship or a positive relationship.
investors purchase financial assets such as shares or bonds because they desire to increase their wealth, i.e., earn a positive rate of return in their investment, the future is uncertain, investors do not know what rate of return their investments will realize. in finance we assume that individuals base their decisions on what they expect to happen and their assessment of how likely it is that actually occurs will be close to what they expected to happen. when evaluating potential investment in financial assets, these two dimensions of the decision making process is called expected return and risk.
there is the relationship between expected return and the expected level of associated risk. the nature of the relationship is that as the level of expected risk increases, the level of expected return also increase, the opposite is true as well lower levels of expected risk are associated with lower expected returns. this risk-return relationship is characterized as being a direct relationship or a positive relationship this risk-return relationship is characterized as being a direct relationship or a positive relationship.
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