BUS 401 Week 4 Journal Risk and Return
The Importance of the Risk and Return Balance
Name
BUS 401 Principles of Finance
Instructor
Date
Can we ever have any return without some type of risk?
It is not possible to have any return without some type of risk. This is because all kinds of investments are characterized by a certain risk. The only possible scenario is to have a return with minimal risk. In the investment sector, government securities such as treasury bonds are considered as having minimal risk. However, investing in such securities does not necessarily guarantee that the investor will yield a return. Such investments are prone to different risks such as political instability. This is a perspective that indicates that it is not possible to have any return without some type of risk.
The rate of return and risk in return represent the dimensions of expectation and uncertainty. The tradeoffs between them are real and faced by individuals and businesses frequently. The decision to invest involves a choice among alternatives having both varying anticipated return and risk. Being averse to risk, individuals and businesses choose the least risky investment for a given level of anticipated return, or require a greater return when investments are riskier. The investor perspective with respect to risk tends to be one of concern with the degree to which returns might depart (or vary) from the expected level.
Risk is a fundamental component of investment (Walter, 2012) This implies that investors must always evaluate the risk factor of an investment in order to project about the potential returns. There are numerous variables that characterize the return yielded from an investment. These returns constitute the risk for each investment. This is another essential perceptive that illustrates that returns are not obtainable without some type of risk.
The relationship between risk and expected return is first described by the capital asset pricing model (CAPM), which links expected return to a
Name
BUS 401 Principles of Finance
Instructor
Date
Can we ever have any return without some type of risk?
It is not possible to have any return without some type of risk. This is because all kinds of investments are characterized by a certain risk. The only possible scenario is to have a return with minimal risk. In the investment sector, government securities such as treasury bonds are considered as having minimal risk. However, investing in such securities does not necessarily guarantee that the investor will yield a return. Such investments are prone to different risks such as political instability. This is a perspective that indicates that it is not possible to have any return without some type of risk.
The rate of return and risk in return represent the dimensions of expectation and uncertainty. The tradeoffs between them are real and faced by individuals and businesses frequently. The decision to invest involves a choice among alternatives having both varying anticipated return and risk. Being averse to risk, individuals and businesses choose the least risky investment for a given level of anticipated return, or require a greater return when investments are riskier. The investor perspective with respect to risk tends to be one of concern with the degree to which returns might depart (or vary) from the expected level.
Risk is a fundamental component of investment (Walter, 2012) This implies that investors must always evaluate the risk factor of an investment in order to project about the potential returns. There are numerous variables that characterize the return yielded from an investment. These returns constitute the risk for each investment. This is another essential perceptive that illustrates that returns are not obtainable without some type of risk.
The relationship between risk and expected return is first described by the capital asset pricing model (CAPM), which links expected return to a