07 Personal Risk Management Process

Question 1

Financial goal must have MONETARY VALue and TARGET DATE

Answer 1

Manage RISK —two Characterization RISK

1. Pure Risk vs. Speculative RISK
2. Objective RISK vs. Subjective

Question 2

Pure risk —ONLY possibility of loss or NO loss…No possibility of Gian
e.g the risk of you car being stolen

Answer 2

Speculative Risk –there is the possibility of Gain or Loss

the potential return on investment is considered a Speculative RISK

Question 3

Objective risk – no such thing as PURELY objective RISk, as it is extremently difficult to measure risk that every one agrees.
- .look at portofil, disagree which portfolio is rickest , least risk

Answer 3

Subjectiv RISK – vary from person to person

• depending on age, culture, education
• financial status

Question 4

Measuring RISK, with 4 objectives

Answer 4

1. Standard Deviation
2. Shortfall RISK
3. PUre risk
4. Time diversification

Question 5

Standard deviation - measures the fluctuaiton in security or portfolio period over period returns
- how much a security’s return varies or deviates from expected average return

Answer 5

• measurae unsystmeatic risk