Risk and return

Question 1

A Return

Answer 1

A return is the amount received by investor as A COMPENSATION for taking on the RISK of the investment.

Question 2

Return of Investment - formula

Answer 2

= amount Received - amount Invested

Question 3

an investor paid 100k for investment that returned 112k the investor return is ?

Answer 3

=112k-100k

the investor’s return is 12000

Question 4

Rate of return - formula

Answer 4

return on investment / amount invested

Question 5

Name the two basic types of INVESTMENT RISK

Answer 5

Systematic Risk also called market risk

Unsystematic Risk also called nonmarket or company risk

Question 6

Systematic Risk

Answer 6

also called market risk is the risk that faced by all firms changes in economy as a whole, such as the business cycle, affect all players in the market.

Question 7

why systematic risk is referred to as undiversifiable risk

Answer 7

since all individual securities are affected differently by economic conditions, this risk can not be offset through portfolio diversification .

Question 8

Unsystematic risk

Answer 8

also called nonmarket or company risk , is the risk inherent in a particular investment security . this type of risk is determined by the issuer’s industry, products, customer loyalty , degree of leverage management competence, etc.

Question 9

why unsystematic risk referred to as diversification risk?

Answer 9

since individual securities are affected differently by economic conditions , this risk can be offset by portfolio diversification.