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Page 3 What is Return? “Income received on an investment plus any change in market price, usually expressed as a percent of the beginning market price of the investment “ Page 4 What is Return? “Income received on an investment plus any change in market price, usually expressed as a percent of the beginning market price of the investment “ Return Capital Gain Yield Page 5 What is Return? “Income received on an investment plus any change in market price, usually expressed as a percent of the beginning market price of the investment “ Return Capital Gain Yield Components of Return ? Yield The most common form of return for investors is the periodic cash flows (income) on the investment, either interest from bonds or dividends from stocks. ? Capital Gain The appreciation (or depreciation) in the price of the asset, commonly called the Capital Gain (Loss).Read More
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FAQs on PPT - Concept of Risk and Return - Accountancy and Financial Management - B Com
| 1. What is the concept of risk and return in finance? |  |
Ans. The concept of risk and return in finance refers to the trade-off between the potential gain (return) and the possibility of loss (risk) that an investment carries. It implies that investments with higher potential returns also tend to have higher levels of risk. Investors must carefully consider their risk tolerance and investment goals to make informed decisions.
| 2. How can risk be measured in finance? | |
Ans. Risk in finance can be measured using various methods, including standard deviation, beta, and value at risk (VaR). Standard deviation measures the volatility or variability of returns, indicating the extent to which an investment's return may deviate from its average return. Beta measures the sensitivity of an investment's returns to market movements. VaR estimates the maximum potential loss an investment may incur within a given confidence level.
| 3. What factors contribute to the calculation of return in finance? | |
Ans. Several factors contribute to the calculation of return in finance, including capital gains or losses, dividends or interest received, and any change in the value of the investment. The return on an investment is typically expressed as a percentage and can be calculated using formulas such as the simple return or the compound annual growth rate (CAGR).
| 4. How do investors assess the risk and return of different investment options? | |
Ans. Investors assess the risk and return of different investment options by analyzing various factors. These factors may include the historical performance of the investment, the volatility of its returns, the underlying assets or industries, the current economic conditions, and the investor's risk tolerance. Tools like risk-reward ratios and risk assessment models are also used to evaluate the potential risks and returns associated with investment options.
| 5. What strategies can investors employ to manage risk and enhance returns? | |
Ans. Investors can employ several strategies to manage risk and enhance returns. Diversification is one such strategy, which involves spreading investments across different asset classes, sectors, or geographic regions to reduce the impact of any single investment on the overall portfolio. Additionally, investors can use techniques like hedging, stop-loss orders, and setting realistic investment goals to manage risk. Regular monitoring and rebalancing of the portfolio can also help align investments with changing market conditions and optimize returns.
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