Asked by Vania Grace on Jul 07, 2024
Verified
Risk in finance:
A) is variability in return.
B) can be decomposed into business-specific and market components.
C) will be accepted by some investors if higher expected returns are offered in compensation.
D) All of the above
Business-Specific
Business-specific refers to elements, strategies, or characteristics that are unique or pertinent to a particular company or industry.
Market Components
The different elements that make up a financial market, including stocks, bonds, currencies, commodities, and derivatives.
Expected Returns
The anticipated return on an investment, estimating the average of probability-weighted returns for a given asset.
- Elucidate the idea of risk in the context of investing and learn to measure it.
- Recognize the various categories of investment risks and comprehend the significance of differentiating between them.
Verified Answer
SA
Shareefa AlyafiJul 13, 2024
Final Answer :
D
Explanation :
All of the options A, B, and C are correct.
A) Risk in finance refers to the variability in returns. Higher variability means higher risk, and therefore higher returns are expected to compensate for the additional risk.
B) Risk can be broken down into business-specific and market components. Business-specific risk is related to the specifics of the company's operations, while market risk is related to overall market factors that affect all investments.
C) Some investors may be willing to accept higher risk if they expect higher returns as compensation. This concept is often referred to as the risk-return tradeoff.
A) Risk in finance refers to the variability in returns. Higher variability means higher risk, and therefore higher returns are expected to compensate for the additional risk.
B) Risk can be broken down into business-specific and market components. Business-specific risk is related to the specifics of the company's operations, while market risk is related to overall market factors that affect all investments.
C) Some investors may be willing to accept higher risk if they expect higher returns as compensation. This concept is often referred to as the risk-return tradeoff.
Learning Objectives
- Elucidate the idea of risk in the context of investing and learn to measure it.
- Recognize the various categories of investment risks and comprehend the significance of differentiating between them.