•Risk arises from uncertainty about the future.
•Risk has to do with the future payoff of an investment, which is unknown. Imagining all the possible payoffsand the likelihood of each one is a difficult butindispensable part of computing risk.
•The definition of risk refers to an investment or group of investments.
•Risk must be measured over some time horizon. Inmost cases the risk of holding an investment over ashort period of time is smaller than holding it over along one.
•Risk must be measured relative to a benchmark ratherthan in isolation.