Risk And Return Definition

An investor who has registered a profit is said to have seen a return on his or her investment.

Risk and return definition. Risk and return definition a concept whereby an investor must realize the impossibility of achieving a return on their investment without facing the certain amount of risk involved the process. Risk refers to the variability of possible returns associated with a given investment. What is risk and return. The term risk and return refers to the potential financial loss or gain experienced through investments in securities.

Increased potential returns on investment usually go hand in hand with increased risk. Different types of risks include project specific risk industry specific risk competitive risk international risk and market risk. Risk is associated with the possibility that realized returns will be less than the returns that were expected. The risk return tradeoff is an investment principle that indicates that the higher the risk the higher the potential reward.

Return refers to either gains and losses made from trading a security. Government security has a small percentage return but it s considered risk free as the u s. Risk and return considerations. This trade off which an investor faces between risk and return while considering investment decisions is called the risk return trade off.

To calculate an appropriate risk return tradeoff investors must. This possibility of variation of the actual return from the expected return is termed as risk. The firm must compare the expected return from a given investment with the risk associated with it. Government hasn t defaulted on an obligation in its 250 year history.

And most of us understand that a return is what. The risk of the investment meanwhile denotes the possibility or likelihood that the investor could lose money. Risk is the variability in the expected return from a project. When it comes to financial matters we all know what risk is the possibility of losing your hard earned cash.

In investing risk and return are highly correlated. Higher risk is associated with greater probability of higher return and lower risk with a greater probability of smaller return.