Presentation Risk and Return Relationship

Risk, in traditional terms, is viewed as negative. Websters dictionary, for instance, defines risk as exposing to danger or hazard.

Unsystematic Risk

Systematic Risk

 Market Risk

Systematic Risk

Interest Rate Risk

Purchasing Power Risk

 Business Risk

Unsystematic Risk

Financial Risk
Default Credit Risk

Wrong method of investment Wrong timing of investment

Wrong quantity of investment

Creditworthiness of the issuer

Natural calamities,etc.

Return from a venture is concerned with benefit from that venture. In the field of Finance; the term is associated not merely with amount but with percentage.

Total Return = Income received + Price change / Purchase price of the asset

Risk and Return

Return expresses the amount which an investor actually earned on an investment during a certain period. Return includes the interest, dividend and capital gains. Risk represents the uncertainty associated with a particular task.

Return
Low Risk High Return High Risk High Return

Low Risk Low Return

High Risk Low Return

There is a positive relationship between risk and return.

Risk and return are the two most important attributes of an investment. Research has shown that the two are linked in the capital markets and that generally, higher returns can only be achieved by taking on greater risk. Risk isnt just the potential loss of return, it is the potential loss of the entire investment itself (loss of both principal and interest). Consequently, taking on additional risk in search of higher returns is a decision that should not be taking

Return %

Risk Premium

RF

Real Return Expected Inflation Rate

lightly.

Risk

Return

Market Return = m Risk Free Return =

Efficient Portfolio

rf
Risk

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