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BENEFITS OF DOCUMENT

  1. Provide of the Risk and Return Concepts
  2. Provides of Portfolio (market) Risk
  3. Provides of Risk and return: CAPM/SML

DOCUMENT DESCRIPTION

Risk and Return in Investment (Financial Management)

Lecture Outline
1. Basic return concepts
2. Basic risk concepts
3, Stand-alone risk
4, Portfolio (market) risk
5. Risk and return: CAPM/SML

Return on investment is the profit expressed as a percentage of the initial investment. Profit includes income and capital gains. Risk is the possibility that your investment will lose money.

You cannot eliminate risk, but you can manage it by holding a diversified portfolio of stocks, bonds and other assets. The portfolio composition should be consistent with your financial objectives and tolerance for risk. Investment returns tend to be higher for riskier assets. For example, savings accounts, certificates of deposit and Treasury bonds have lower rates of return because they are safe investments, while long-term returns are higher for growth stocks and other riskier assets.

Risk is the likelihood that actual returns will be less than historical and expected returns. Risk factors include market volatility, inflation and deteriorating business fundamentals. Financial market downturns affect asset prices, even if the fundamentals remain sound. Inflation leads to a loss of buying power for your investments and higher expenses and lower profits for companies.

Business fundamentals could suffer from increased competitive pressures, higher interest expenses, quality problems and management inability to execute on strategic and operational plans. Weak fundamentals could lead to declining profits, losses and eventually a default on debt obligations.

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Risk and Return in Investment (Financial Management)

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File Type: PowerPoint (ppt)

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Related Topic(s): Emerging Market Entry ROI

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Initial upload date (first version): Apr 19, 2022
Most recent version published: Apr 19, 2022

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