Risk Analysis

Risk and Return Analysis

Constance Agee-Goldwire

FIN 370/ Finance

April 4, 2016

Thien Ngo

Risk and Return

In life we learn that without taking a risk we may not reap benefits. That means we have to learn to take chances. We take risks every day without being aware of the actual risk we are taking. When it comes to who we date, who we marry, what we eat when we go to restaurants and even just driving down the street we are taking a risk. Risks are a necessary part of life . If we never take a risk we lose out on things that later become important or valuable to us.

We may wonder does the same apply when it comes to investments. If we take a risk and invest out hard earned money what type of return will we receive? In order to answer that question we need to fully understand what is the relationship between risk and return.

On the website, Investorwords.com the definition of risk and return is the concept where an investor must realize the impossibility of achieving a return on their investment without facing a certain amount of risk in the process. When it comes to financial matters in terms of risk and returns we need to understand all the risks or possibilities involved with losing our hard earned money. We all want to receive a return on our investments, but are not always clear on the risks that are involved.

Many people put their money in savings accounts or purchase government bonds because they consider it safe and because there is very little risk involved. You do not receive much of a return on those type of investments because the interest rates on savings accounts are so low and you do not receive a high return on most bonds. The risk is low so the expected return should also be low. If a person wants to receive a higher return on an investment they have to be willing to take a higher risk and invest more money.

A lack of knowledge and even our own personal comfort with taking risk often...