HSC Finance, Banking, and Bima 1st Paper 9th Chapter Note Risk and Return

HSC Finance, Banking, and Bima 1st Paper 9th Chapter Note Risk and Return. Investors purchase financial assets such as shares of stock because they desire to increase their wealth, i.e., earn a positive rate of return on their investments. The future, however, is uncertain; investors do not know what rate of return their investments will realize. In finance, we assume that individuals base their decisions on what they expect to happen and their assessment of how likely it is that what actually occurs will be close to what they expected to happen. When evaluating potential investments in financial assets, these two dimensions of the decision-making process are called expected return and risk. The concepts presented in this section include the development of measures of expected return and risk on an individual financial asset and on a portfolio of financial assets, the principle of diversification, and the Captial Asset Pricing Model (CAPM).

HSC Finance, Banking, and Bima 1st Paper 9th Chapter Note Risk and Return

Country risk refers to the risk that a country won’t be able to honor its financial commitments. When a country defaults on its obligations it can harm the performance of all other financial instruments in that country as well as other countries it has relations with. Country risk applies to stocks, bonds, mutual funds, options and futures that are issued within a particular country.

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