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Risk and Expected Rate of Return

People are loath to loose things that are valuable or were acquired with difficulty; money is usually covered by both criteria. All investments involve some level of risk, from short term treasury notes which have virtually none, to speculative startups that don’t stand a chance of ever being profitable, investor’s need to measure the probable outcome of an investment.

Risk is a level of uncertainty about the future. In common usage risk it the chance that something unfavorable will happen, it is often estimated at as a percentage.

Risk is married to return, without the expectation of a positive return on an investment no investment would be made. Return is also usually measured as a percentage, such as a bond with a 5% coupon; the buy expects to receive 5 dollars for every 100 dollars invested.