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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.
What else can I help you with?
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.
Basic concept of risk and return?
The higher the risk, the higher the return.
Relationship between risk and return?
risk is pre-stage for return...
What is a good Capital Asset Pricing Model (CAPM) and how can it be effectively utilized in financial analysis?
The Capital Asset Pricing Model (CAPM) is a financial model that helps investors assess the expected return on an investment based on its risk level. It considers the risk-free rate, the market rate of return, and the asset's beta, which measures its volatility compared to the overall market. By using CAPM, investors can determine if an investment is priced correctly based on its risk level. This model can be effectively utilized in financial analysis by providing a framework for evaluating the risk and return of investments, helping investors make informed decisions about their portfolios.
What is the difference between the required rate of return and the expected rate of return in investment analysis?
The required rate of return is the minimum return an investor needs to justify the risk of an investment, while the expected rate of return is the return that an investor anticipates receiving based on their analysis of the investment's potential performance.
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?
Society for Risk Analysis 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
Risk Analysis is based on what?
Risk Analysis is based on both assets and facilities.
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
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
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 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.
