The Relationship Between Risk And Rate Of Return Essay

1531 Words Oct 31st, 2016 7 Pages
Analyze the relationship between risk and rate of return, and suggest how you would formulate a portfolio that will minimize risk and maximize rate of return.
The risk free rate refers to the interest that a stockholder would potentially have in terms of risk free investment, that too, over a specified time period. In simple words, it can be said that risk free rate is the least of the anticipated return in terms of investment by stockholder since the individual is not interested in bearing and additional risk unless the potential rate of return in comparison to previous one appears beneficial. The fact cannot be denied that risk-free rates do not actually exist since no investment comes without risk. The standard, consequently has been defined as the risk free rate is U.S. Treasury bill which is the interest rate for 3 months.
The best use of portfolio has been made to date on the modern portfolio concept in which the return on specific aggregate of the portfolio is predicted by means of selection of the available resources. While dealing with investment assortment, the designation of resources shall not be made individually and collectively on the basis of advantages. Instead of that, it is essential to consider how the variation in price relating to each asset has its impact on the benefits relating to portfolio.
The art of investing relates to adjustments in between of the existing risks and expectations relating to a certain return. In general, those resources which…

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