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The concept of risk and return analysis is integral to the process of investing and finance. All financial decisions invlove some risk. You may expect to get a return of 15% per annum in your investment but the risk of "not able to achieve 15% return" will always be there.
Return is simply a reward for investing as all investing involves some risk.
The greater the risk, the greater the return expected.
The objective of risk and return analysis is to maximize the return by creating a balance of risk. For example, in case of working capital management, the less inventory you keep, the higher the expected return as less of your money is locked as asset.; but you also have a increased risk of running out of raw material when you actually need it for production or maintenance. Which means you loose sale. Thus all companies tries very hard to maintain an minimum investory as possible without effecting smooth production. This is a very commong expample of risk return trade-off
In case of an investment in shares/stocks, I as an investor accept to get a better return than fixed deposits but I am also ready to take risk of loosing my money in Stock Market.
Hence important is to understand how much risk you can take and invest accordingly.
A lay man shall ask himself:
- How much money I can put in stocks today, and even if I loose this money it will not affect my way of life? If your answer is $100 it means you are ready to take a risk for $100.
- How much return I expect from stock in next one year? if you want to make 12% per annum your expectation is real and you are taking a risk of $100 dollars to make 12% per annum.
Bu doing this a lay man is calculating his risks and extimating a return on investment.
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What is risk analysis?
Once the risks have been identified, you need to answer two main questions for each identified risk: 1. What are the odds that the risk will occur, 2. If it does occur, what will its impact be on the project objectives? You get the answers by performing risk analysis. There are two main forms of Risk Analysis: 1. Qualitative Risk Analysis & 2. Quantitative Risk Analysis
How do you calculate risk - free return?
Risk free rate of return or risk free return is calculated as the return on government securities of the same maturity.
Relationship between risk and return?
risk is pre-stage for return...
Basic concept of risk and return?
The higher the risk, the higher the return.
What is role of portfolio manager?
Deciding the Best Investment plan for an individual by considering income ,age and capability to take risk. Risk diversification Efficient portfolio Asset Allocation Beta Estimation Rebalncing Portfolio Portfolio Revision Risk and Return Analysis of a security.
What are the benefits of investment analysis?
utilising the given money which is used for investment purpose
How risk analysis could be done?
why risk analysis done
When was Society for Risk Analysis created?
The Society for Risk Analysis (SRA) was created in 1980.
What is risk-benefit analysis?
Risk-benefit analysis is the comparison of the risk of a situation to its related benefits
What is risk analysis?
Once the risks have been identified, you need to answer two main questions for each identified risk: 1. What are the odds that the risk will occur, 2. If it does occur, what will its impact be on the project objectives? You get the answers by performing risk analysis. There are two main forms of Risk Analysis: 1. Qualitative Risk Analysis & 2. Quantitative Risk Analysis
Risk Analysis is based on what?
Risk Analysis is based on both assets and facilities.
Objective of security analysis?
The objective of a security analysis is to ensure your computer network is as secure as possible. A security analysis will help you find weaknesses in your system in order to develop your security protocols.
What is benefit analysis?
Risk-benefit analysis is the comparison of the risk of a situation to its related benefits
What are the objective of operating cost?
To seperate the cost of production from profit to allow analysis like ROI (Return on Investment), cost vs benefit, and cost reducing production improvements.
What is the objective of safety and hazard analysis?
The objective of a safety hazard analysis is to identify unacceptable risks and correct them before they become injuries, illnesses or property damage.
How do you calculate risk - free return?
Risk free rate of return or risk free return is calculated as the return on government securities of the same maturity.
What are the two main forms of Risk Analysis?
There are two main forms of Risk Analysis:1. Qualitative Risk Analysis &2. Quantitative Risk AnalysisQualitative Risk AnalysisThis is used to prioritize risks by estimating the probability of the occurrence of a risk and its impact on the project.Quantitative Risk AnalysisThis is used to perform numerical analysis to estimate the effect of each identified risk on the overall project objectives and deliverables.Usually, you prioritize risks by performing qualitative analysis on them before you perform quantitative analysis. We will learn both one by one in the subsequent chapters.
