Risk and Return Relationship - Essay Example

Comments (0) Cite this document
This essay talks about the characteristics that can influence risk as the probability of losing anything of value or uncertainty of a result. This paper also analyzes the risk and return relationship which is fundamental to the potential investment decisions…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER91.3% of users find it useful
Risk and Return Relationship
Read TextPreview

Extract of sample "Risk and Return Relationship"

Download file to see previous pages The essay "Risk and Return Relationship" talks about the characteristics that can influence risk as the probability of losing anything of value or uncertainty of a result. This paper also analyzes the risk and return relationship which is fundamental to the potential investment decisions. The risk is an outcome of those actions which are taken regardless of uncertainty. The characteristics that can control or influence risks are as follows:
Using debt: Using debt in the business increases the chances of risk bear by shareholders, but it also results in the higher rate of returns.
Optimal capital structure: Making use of optimal or most favorable capital structure balances the pressure or influence of risk and maximizes the stock price of the company.
Aggressive management: Risk can be influenced by the aggressive management. The aggressive managers of the firm are more prone to utilize debt in order to increase profit.
The relationship between risk and return is fundamental to the investment decisions, whether assessing a sole investment or selecting between different investments. Potential investors evaluate the relationship between risk and return when they have to make a decision regarding investment in securities like bonds or shares. It has been discovered that there is a positive connection between the risk and return. The securities which are riskier provide a greater return. However, Bowman found that there is a distinct and significant negative relationship between risk and return. ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Risk and Return Relationship Essay Example | Topics and Well Written Essays - 750 words”, n.d.)
Risk and Return Relationship Essay Example | Topics and Well Written Essays - 750 words. Retrieved from https://studentshare.org/finance-accounting/1700033-answer-the-question-07151
(Risk and Return Relationship Essay Example | Topics and Well Written Essays - 750 Words)
Risk and Return Relationship Essay Example | Topics and Well Written Essays - 750 Words. https://studentshare.org/finance-accounting/1700033-answer-the-question-07151.
“Risk and Return Relationship Essay Example | Topics and Well Written Essays - 750 Words”, n.d. https://studentshare.org/finance-accounting/1700033-answer-the-question-07151.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Risk and Return Relationship

Risk and return

... Risk and return are two inversely correlated concepts. A person or a corporation that is risk adverse will not take chances. Lower risk lead to lower returns and higher risk leads to higher returns. The general rule of higher risk leading to higher returns is not set in stone. One of the problems with higher risk is that it can lead to financial catastrophes. For example imagine a person that invests in a penny stock. Penny stocks are considered the most risky of all types of investments. The person decided to invest in penny stock X because he wanted the possibility of earning a higher return. Due to the risk associated with penny stocks the stock ended up defaulting due to the fact that the company went out of business... . The penny stock...
4 Pages(1000 words)Essay

Risk and Return

...?Introduction Cost of equity is one of the critical and important tools through which investors can estimate the expected returns to be earned on anyproposed investment. Cost of equity therefore not only provides the expected returns figure but also takes into consideration any particular risks associated with any particular stock. The concepts of risk and return therefore are most important while estimating cost of equity and as such capital asset pricing model is considered as one of the most important models to estimate the cost of equity by correlating risk and reward with each other. It not only takes into account the...
3 Pages(750 words)Term Paper

Risk and Return

...the factors that determine the return on the security, the more that the model becomes complex to apply as the relationship between each factor and the price of the security has to be determined. This has made CAPM be preferred by investors in their investment decisions determination. More investors have always used CAPM as a way of determining the risk and return of their assets. Question 3 Multifactor models that are used in estimating the return of securities considers the various factors that affect the pricing of a security. The factors that are used in the multifactor models are assumed not to be correlated and therefore the return...
8 Pages(2000 words)Assignment

Risk Assessment and Return Analysis

...? Risk Assessment and Return Analysis Risk Assessment and Return Analysis In investment, risk assessment and return analysis are vital elements are central to the payout structures of investment vehicles. The general utility theory asserts that the average investor dislikes risks and prefers investment vehicles with the least possible risk. Risk assessment entails the analysis of investment vehicles to discover their capacities to ensure sufficient returns on investment. Risk assessment entails the analysis of an asset’s standard deviation or...
3 Pages(750 words)Essay

Risk Assessment and Return Memo

...Rainier Ekstrom, Chief Executive Officer (CEO) Selecting The Portfolio And Investment Strategy Diversification of portfolio is important in order to achieve maximize the return and minimize the risk of the portfolio (Froot, Scharfstein, & Stein, 1993). In order to create portfolio, my most important priority has been to select four stocks after analyzing the risks and return of each of the stock. This would allow me to diversify the portfolio and make sure that the portfolio the risk is minimized and returns are maximized. To create a portfolio, I have selected four stocks of different companies belonging from different companies after...
5 Pages(1250 words)Essay

Risk-Return Concepts

...Risk-Return Concepts For a potential investor, the market presents an array of financial instruments where money can be invested into. The primary motivating factor in choosing investment is the expected returns to be generated. However, it should be noted that the decision in selecting the "right" investment is also largely dependent on the investor's perceived risk. It is irrefutable that most investors already have this preset conception of what type of investment is likely to give him more profits and gains in the future. There is a widely held belief that an investment in the stock market is a no-win situation and only institutional investors reap profits. Thus,...
2 Pages(500 words)Essay

Capital budgeting, Risk, Return, CAPM

...Capital Budgeting, Risk, Return, CAPM Supplementary Problem Interest=25 % of 20 billion = 5 billion Tax on the interest = 41 % of 5 billion = 205,000 000 Total amount = 5 billion + 2.05 billion = 7.05 billion This is the amount that Darth is prior to pay if he goes for a loan so as to acquire the Death star. That means Darth will pay 27.05 billion for acquiring the star. 8 billion * 15 years = 120 billion. This is the amount that Darth can pay if he acquires the Death star on lease. This gives that Darth is to seek for a bank loan so as to get the Death star without much expenses. Comparing to the amount that one can purchase this instrument with this is a lot more that would push the project far ahead. This gives the importance... ...
3 Pages(750 words)Assignment

Risk and Return Relationships Analysis

...Topic: Risk and Return Relationships Analysis Question The current financial markets have developed into huge trading factories that are dominated ultra-fast traders with an ability to swap stocks, futures as well as option and other aspects of the market in a matter of seconds (Saunders & White, 2003). The traders arbitrate between different markets and bounce between stick index futures, stock options and stocks in various exchanges through trading that drives profits at the exchanges. However, the stock market is neglecting one of its core aspects, the small companies and this has led to fewer companies going public with many of the small companies being acquired by larger ones (Anson, Fabozzi & Jones, 2011). It is important... ...
2 Pages(500 words)Coursework

Risk and Return Journal

...Risk and Return Introduction Risk is the probability that business’ projected income might not be the same as the real income. In business, risk includes the possibility of losing part of or the entire original investment. Risk and return are directly proportional, the higher the risk, the higher, and the return. An ordinary inaccurate understanding among investors is that higher level of risk guarantees high returns, but the reality is that high risk only increases the chance of getting high returns. In reference to the video, it is...
2 Pages(500 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Risk and Return Relationship for FREE!

Contact Us