Risk and Return Fundamental:

Q: What are the fundamental of Investment Return?

Ans: Investment return measures the financial return of an Investment. Return may be historical or
prospective and can be expressed in Taka or percentage.

The rate of return can be calculate as

Amount Received - Amount Invested

Return = ------------------------------------------------------------------------

Amount Invested.

Dt + (Pt-Pt-1)

R = ----------------------------------------------------------

Pt-1

Question: Amount Invested 100 TK and Received 110 TK and what is the Return of Investment ?

Ans: We know, Amount Received – Amount Investment

Return (R) = -------------------------------------------------------

Amount Invested.

110 – 100

100

=10%

Question : Stock Price for Sock A was $10 per share one year ago. The Stock is currently at $9.50 per
share and the shareholder receive $1 as dividend. What return earned over the past year?

Answer:

R=

Dt + (Pt-Pt-1)

Pt-1

= 1 + (9.50 – 10) = .5/10 =5%

10

Rate of Return:
Rate of Return is the total gain or Loss of an investment over a given period.

Risk: Risk is the total amount or extent of Uncertain surrounding the return on an investment.

Investment Risk: Investment Risk is related to the probability of earning a low or negative actual return.

The greater the chance of negative return or lower than expected the riskier the investment. Investment
return are not known with certainty.

Q: What do you know about Risk or What do you think investment is certain and why explain.

Risk: Risk is the total amount or extent of Uncertain surrounding the return on an investment.

Investment Risk: Investment Risk is related to the probability of earning a low or negative actual return.

The greater the chance of negative return or lower than expected the riskier the investment. Investment
return are not known with certainty.

Risk Type:

There are three types of Risk..

1. Risk averse.
2. Risk Neutral.
3. Risk Seeking.

1. Risk Averse: Prefer less risky return on higher risky investment holding the return is fixed. If the
risk averse investor knows that two different investments have the same rate of return, he will
seek for the investment which once has less risk or whose return are more certain.

2. Risk neutral: Investor choose investments based on their expected rate of return ignoring the
risk. When choosing between two different investments, a risk neutral investment will always
choose the investment with higher rate of return regardless its risks.

3. Risk Seeker: Investor who chose to invest in higher risky investments are called risk seeker. They
sometimes agree to ignore some percentages of return to investment in higher risky
investment.

Risk Averse: Prefers less risky return on higher risky investment holding the return is fixed. If the risk

Risk Averse are less

Risk Neutral

Risk Seeker