What is relationship risk and return?
The risk-return tradeoff states the higher the risk, the higher the reward—and vice versa. Using this principle, low levels of uncertainty (risk) are associated with low potential returns and high levels of uncertainty with high potential returns.
What is the relationship between risk and return in finance?
The risk-return tradeoff states that the potential return rises with an increase in risk. Using this principle, individuals associate low levels of uncertainty with low potential returns, and high levels of uncertainty or risk with high potential returns.
What do you mean by risk and return in financial management?
A person making an investment expects to get some returns from the investment in the future. It is the uncertainty associated with the returns from an investment that introduces a risk into a project. The expected return is the uncertain future return that a firm expects to get from its project.
What type of relationship exists between risk and expected return?
Type of relationship exists between an expected return and risk of portfolio is classified as linear.
What is the meaning of idiosyncratic risk?
Idiosyncratic risk is a type of investment risk that is endemic to an individual asset (like a particular company’s stock), or a group of assets (like a particular sector’s stocks), or in some cases, a very specific asset class (like collateralized mortgage obligations).
What type of relationship exists between risk and risk premiums?
The standard deviation considers the expected return for each economic state and each state’s probability of occurrence. What type of relationship exists between risk and risk premiums? Rationale: There is a direct relationship between risk and reward.
How do you interpret expected return?
Understanding Expected Return For example, if an investment has a 50% chance of gaining 20% and a 50% chance of losing 10%, the expected return would be 5% = (50% x 20% + 50% x -10% = 5%).
Which is the best example of idiosyncratic risk?
Example of idiosyncratic risk For example, the changes in the tax policy, inflation, customer demands, and interest rates are some of the factors that affect the company’s stock price but have nothing to do with its managerial skills. Most importantly, it isn’t something the company can control or avoid.