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How is diversification related to risk and return?
Diversification is related to risk and return because it involves spreading investments across different assets to reduce risk. By diversifying, investors can potentially lower the overall risk of their portfolio while still aiming for a competitive return. This strategy helps to minimize the impact of any single investment performing poorly, thus balancing the trade-off between risk and return.
What is Four principles of finance?
1. Money has a Time Value 2. There is a Risk-return trade off 3. Cash flows are the Source of Value 4. Market Prices reflect Information
What is the explanation for the various functions of financial management?
What are the functions of finance? Answer The five basic corporate finance functions are described as those functions related to; 1) raising capital to support company operations and investments (aka, financing functions); 2) selecting those projects based on risk and expected return that are the best use of a company's resources (aka, capital budgeting functions); 3) management of company cash flow and balancing the ratio of debt and equity financing to maximize company value (aka, financial management function); 4) developing a company governance structure to encourage ethical behavior and actions that serve the best interests of its stockholders (aka, corporate governance function); and 5) management of risk exposure to maintain optimum risk-return trade-off that maximizes shareholder value (aka, risk management function)
Should I sell stock in order to pay off my mortgage?
It depends on your financial goals, risk tolerance, and the potential return on investment. Consider consulting with a financial advisor to evaluate the best course of action for your specific situation.
Can you write off property taxes in California on your tax return?
Yes, you can write off property taxes in California on your tax return as long as you itemize your deductions.
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 are the two key ideas of modern portfolio theory?
The two key ideas of modern portfolio theory are diversification and the trade-off between risk and return. Diversification involves spreading investments across different assets to reduce risk, while the risk-return trade-off suggests that investors should seek an optimal balance between risk and potential return based on their risk tolerance.
The basic trade-off in the investment process?
The basic trade- off in the investment process is between the anticipated rate of return for a given investment instrument and its degree of risk.
How is diversification related to risk and return?
Diversification is related to risk and return because it involves spreading investments across different assets to reduce risk. By diversifying, investors can potentially lower the overall risk of their portfolio while still aiming for a competitive return. This strategy helps to minimize the impact of any single investment performing poorly, thus balancing the trade-off between risk and return.
The trade off between profitability and risk is?
trade off between ris and profitability
How do financial decision involve risk return trade off?
The principle that potential return rises with an increase in risk. Low levels of uncertainty (low risk) are associated with low potential returns, whereas high levels of uncertainty (high risk) are associated with high potential returns. According to the risk-return tradeoff, invested money can render higher profits only if it is subject to the possibility of being lost.-- Raju R akki
What is a risk you accept in order to gain a benefit?
Trade-off
What is Four principles of finance?
1. Money has a Time Value 2. There is a Risk-return trade off 3. Cash flows are the Source of Value 4. Market Prices reflect Information
What is a trade off in?
A trade off usually refers to losing one quality or aspect of something in return of gaining another quality or aspect.
What is a trade off in economics?
A trade off usually refers to losing one quality or aspect of something in return of gaining another quality or aspect.
What is the difference between a risk on and risk off trade?
Risk off means investors want to avoid risk. Risk on means they are willing to take on more risk. It seems like a sloppy phrase , but they know what it means, and who cares about the layman anyway (lol).
What managerial actions can influence the value of the firm in the context of the shareholders wealth maximization model?
The risk and return trade-off or the attitude of management towards risk will play a major role in determining the value of a firm. This for example will form a basis of whether to invest in government bonds where the risk of default is low and return equally expected will be low, this is the opposite of a decision to invest in shares where the risk is high but the expected return can equally be high. In terms of SWM, the value of the firm will be reflected in the market value of a company's shares.
