Risk and Return
The relationship is characterized by the tradeoff that is the higher the risk, the greater the possible return. The relationship is affected by time and is, therefore, one of the most important aspects of investing pension. Investment risk is the possibility to gain or lose money depending on the inflation (Phillips, J. J. 2012).The level of risk varies depending on the investment those of higher risk guaranteed high investment returns these are known as growth assets.
Those in lower risks levels such as defensive assets deliver lower investment returns. The range can come from a range of sources depending on the investments at hand. They are affected by changes in the economies, investment markets, and social and political …show more content…
Saving Bonds and bank deposits have very low risks in that they are either backed by large financial institutions. The likelihood of losing of money in these low-risk investments is minimal, but they have low potential returns and may not keep pace with inflation. Bonds have higher returns but have more risks in that prices may drop due to the issuer’s creditworthiness declines or if the interest rates rise. Losses are incurred if the prices of the bonds drop.
Stocks, on the other hand, are riskier compared to bonds, but they have potentially higher returns. In the case of bonds the investors are creditors they are entitled to fixed amounts of interests and principal and are repaid in priority if the company goes bankrupt. Even if the company is successful, the creditors don’t earn more than the fixed amounts of interest and principals. While in the cease of stocks the shareholders are owners that are if the company is unsuccessful they lose all their …show more content…
Understanding the risks and approaches to risk management plays a central role for an investor making any business venture. Several vital questions should be answered the time frame one will be able to access the invested capital.
Scenario analysis evaluates the expected value of a proposed investment, by determining the probability distribution of the investment is equal to determining the risks inherent in the venture. Comparison between the expected return on the expected risk and overlaying the investors risk tolerance leads to making better decisions on whether to invest in the prospective business venture.
Historical performance data gives some insight into the variability of the investment performance and helps one understand the risks borne to occur as a result of venturing in the said investment. Risks analysis tries to determine the future outcome. The risk is the concept that donates the precise probability of specific eventualities in that the possible outcomes may have an undesired effect. The knowledge helps kills uncertainty that is the state of having limited knowledge which makes it impossible to determine future outcomes (Prahalad, C. K., & Ramaswamy, V. 2013). . There is always need for a flexible plan for the business venture in that the strategy is not fixed so that an array of possible outcomes may be accommodated.
The relationship is characterized by the tradeoff that is the higher the risk, the greater the possible return. The relationship is affected by time and is, therefore, one of the most important aspects of investing pension. Investment risk is the possibility to gain or lose money depending on the inflation (Phillips, J. J. 2012).The level of risk varies depending on the investment those of higher risk guaranteed high investment returns these are known as growth assets.
Those in lower risks levels such as defensive assets deliver lower investment returns. The range can come from a range of sources depending on the investments at hand. They are affected by changes in the economies, investment markets, and social and political …show more content…
Saving Bonds and bank deposits have very low risks in that they are either backed by large financial institutions. The likelihood of losing of money in these low-risk investments is minimal, but they have low potential returns and may not keep pace with inflation. Bonds have higher returns but have more risks in that prices may drop due to the issuer’s creditworthiness declines or if the interest rates rise. Losses are incurred if the prices of the bonds drop.
Stocks, on the other hand, are riskier compared to bonds, but they have potentially higher returns. In the case of bonds the investors are creditors they are entitled to fixed amounts of interests and principal and are repaid in priority if the company goes bankrupt. Even if the company is successful, the creditors don’t earn more than the fixed amounts of interest and principals. While in the cease of stocks the shareholders are owners that are if the company is unsuccessful they lose all their …show more content…
Understanding the risks and approaches to risk management plays a central role for an investor making any business venture. Several vital questions should be answered the time frame one will be able to access the invested capital.
Scenario analysis evaluates the expected value of a proposed investment, by determining the probability distribution of the investment is equal to determining the risks inherent in the venture. Comparison between the expected return on the expected risk and overlaying the investors risk tolerance leads to making better decisions on whether to invest in the prospective business venture.
Historical performance data gives some insight into the variability of the investment performance and helps one understand the risks borne to occur as a result of venturing in the said investment. Risks analysis tries to determine the future outcome. The risk is the concept that donates the precise probability of specific eventualities in that the possible outcomes may have an undesired effect. The knowledge helps kills uncertainty that is the state of having limited knowledge which makes it impossible to determine future outcomes (Prahalad, C. K., & Ramaswamy, V. 2013). . There is always need for a flexible plan for the business venture in that the strategy is not fixed so that an array of possible outcomes may be accommodated.