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On a long term basis, investor should expect to be rewarded for the level of risk that they are taking. "Low risk" investment should also mean a lower level of volatilty (amount of change in the value of the investment). While "high-risk" (volatility) investments can vary greatly in value in short time frames however they provide the most long term potential for growth.
Risk means you have the possibility of losing some, or even all, of our original investment.
High levels of uncertainty (high risk) are associated with high potential returns. The risk/return tradeoff is the balance between the desire for the lowest possible risk and the highest possible return. This is demonstrated graphically in the chart below. A higher standard deviation means a higher risk and higher possible return.
An investor still faces substantially greater risk and volatility to get an overall return that is higher than a predictable government security. We call this additional return the risk premium, which in this case is 6% (12% - 6%).
"No pain, no gain." How many times have you heard that cliché to describe something you really didn't want to do? Unfortunately, investing carries a certain amount of risk and with that risk can come some pain, but also some gain.
You must weigh the potential reward against the risk of an investment to decide if the "pain is worth the potential gain." Understanding the relationship between risk and reward is a key piece in building your personal investment philosophy.
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Basic concept of risk and return?
The higher the risk, the higher the return.
The higher the potential return the?
higher the risk for an investment
How is the potential rate of return on investments related to the level of risk?
Higher risk investments have a higher potential return.
What is risk return relationship?
The risk return relationship is a business concept referring to the risk involved in exchange for the amount of return gained on an investment. These two factors are directly proportional to each other, meaning the more return sought, the higher the risk that is undertaken.
What does the risk-return trade-off mean?
In trading and investing, the risk is almost always higher if the return is expected to be greater.The risk-return trade off refers to the direct correlation between risk and return. An investor putting funds into a very low risk investment such as short term government bonds does not expect to incur a loss but will also have no opportunity for a high rate of return. Investing in higher risk ventures such as start up companies, initial public offerings, or common stock can result in significant loss but also offers the potential for out sized returns. Most investors understand that the higher the risk, the higher the potential returns.
What is the general rule in choosing among alternative investment in greater the risk taken?
The higher the risk the more return you could possibly get. The lower risk investments usually do not make you as big of a return.
Do investors that hold riskier financial assets be cmpensated with higher rates of returns?
yes. most of the time they do...Higher the risk higher the return. otherwise who would take risk , when you can get equivalent benefit without taking any risk. for example government bonds, bank deposits that usually are considered risk free investments, so defiantly there is some risk premium over risk free return for risky investment
Why do junk bonds give a higher return than most corporate bonds?
Yes, but with much higher risk.
Difference between risk and return?
Risk is the possibility of loss by unforseen happenings. it may be categorised as monetary and non- monetary. in financial parlance risk is the possiblity of loss in your investments made (either the capital u had invested, returns or both). return is the expected value from an investment which has a risk associated with it. for ex: investing in stock market has a equity risk involved with it. generally returns are based on risk levels. higher the risk higher the return and the vice versa
High return on an investment is associated with?
higher risk. The higher the potential return, the higher the potential risk because there is a greater chance of losing money. High returns often come from investments with higher volatility and uncertainty, such as stocks or speculative assets, which carry greater risks compared to more conservative investments like bonds or savings accounts.
What is a dominant portfolio?
Dominant Portfolio is part of the efficient frontier in modern porfolio theory. If a portfolio has a higher expected return than another portfolio with the same level of risk, a lower level of expected risk than another portfolio with equal expected return or a higher expected return and lower expected risk than the the portfolio is dominant.
What is risk for return?
Risk and return are not a function together, but affect one another indirectly by determining optimal levels of investment. Return is roughly the benefit of investing money into assets; risk is part of the cost of investing that money (due to uncertainty). The varying levels of risk and return change the cost and benefit of investing, thus shifting the equilibrium values of investment.
