Generally, the higher the potential return of an investment, the higher the risk. There is no guarantee that you will actually get a higher return by accepting more risk. Diversification enables you to reduce the risk of your portfolio without sacrificing potential returns.
What is the relationship between risk and return on investment quizlet?
The higher an investment’s risk, the HIGHER the return required to induce investors to purchase the asset. This relationship between risk and return indicates that investors are risk AVERSE; investors dislike risk and require HIGHER rates of return as an inducement to buy riskier securities.
What is the relationship between risk and return Explain with examples?
According to this type of relationship, if investor will take more risk, he will get more reward. So, he invested million, it means his risk of loss is million dollar. Suppose, he is earning 10% return. It means, his return is Lakh but he invests more million, it means his risk of loss of money is million.
What is the relationship between risk and expected return?
There is a positive relationship between the amount of risk assumed and the amount of expected return. Greater the risk, the larger the expected return and the larger the chances of substantial loss.
What is the relationship between risk and profit?
The relationship between profit and risk is: the bigger risk, the bigger profit. There are many benefit, as well as lost, to being an entrepreneur. Benefits many include freedom to make your own decisions, opportunity, and possible wealth.
What is the relationship of risk and return as per CAPM?
The CAPM contends that the systematic risk-return relationship is positive (the higher the risk the higher the return) and linear.
What is the relationship between financial decision making and risk and return would all financial managers view risk/return trade offs similarly?
What is the relationship between financial decision making and risk and return? Would all financial managers view risk-return trade-offs similarly? capital management, the less inventory held, the higher the expected return, but also the greater the risk of running out of inventory.
What do you mean by risk and return in financial management?
first norm is risk and return. The term return refers to income from a security after a. defined period either in the form of interest, dividend, or market appreciation in security. value. On the other hand, risk refers to uncertainty over the future to get this return.
What is risk and return in financial management?
Risk refers to the variability of possible returns associated with a given investment. … In other words, the higher the risk undertaken, the more ample the return – and conversely, the lower the risk, the more modest the return. This risk and return tradeoff is also known as the risk-return spectrum.
What relationship does risk have to return economics quizlet?
The relationship between risk and required rate of return is known as the risk-return relationship. It is a positive relationship because the more risk assumed, the higher the required rate of return most people will demand.
What do you understand by risk and return?
It is the uncertainty associated with the returns from an investment that introduces a risk into a project. The expected return is the uncertain future return that a firm expects to get from its project. … Risk is associated with the possibility that realized returns will be less than the returns that were expected.
The relationship between risk and return is a fundamental concept in finance theory, and is one of the most important concepts for investors to understand. A widely used definition of investment risk, both in theory and practice, is the uncertainty that an investment will earn its expected rate of return.
Why the higher the risk the higher the return?
The higher the risk, the higher the return. . … If the risk of doing business is high, the corresponding return must be also high. This is the general principle. If an investment is very risky, the return from that investment must also be high enough to attract investors.