risk and return presentation

PortfolioA group of investments such as stocks, bonds, mutual funds

and exchange-traded funds that are selected on the basis of an investor's short-term or long-term investment goals. Portfolios are held directly by investors and/or managed by financial professionals.

RiskThe chance that the actual outcome form an

investment will differ from the expected outcome

ReturnIncome received on an investment plus any

change in market price, usually expressed as a percent of the beginning market price of the investment.

Type of RiskBusiness RiskFinancial RiskInterest Rate RiskLiquidity RiskMarket RiskEvent RiskExchange Rate RiskPurchasing Power RiskTax Risk

Business RiskThe chance that the firm will be unable to cover

its operating cost. Business risk affects holders of stocks and bonds, since a firm may be unable to pay dividends and interest.

Financial RiskThe risk that the company will not have sufficient

funds to meet its financial needs is termed as financial risk. The risk arises when companies use debt securities for raising finance. The companies, which issue more debt securities, will have higher financial risk.

Interest Rate RiskThe risk that arises due to changes in the interest

rate and these changes have an impact on the prices of the investments that is, investment value will change due to changes in interest rates. Other things being equal, security prices move inversely to interest rates.

Liquidity RiskThe risk that arises from the difficulty of selling

an asset in a timely manner. It can be thought of as the difference between the "true value" of the asset and the likely price less commissions.

Market RiskThe risk that the investment value of the security

will get reduced to change in the market conditions is market risk . The market risk affects almost all the industries and one such factor from which market risk arises is war between two countries

Event RiskThe risk that the ability of an issuer to make

interest and principal payments will change because of rare, discontinuous, and very large, unanticipated changes in the market environment

Exchange Rate RiskThe risk that an investment's value will change

because of currency exchange rates.Also called currency risk

Purchasing Power RiskThe risk that the rate of inflation will exceeds the

rate of return on an investment.Also called Inflation Risk   

Tax RiskThe chance of unfavorable changes in tax laws

will occur.

Risk PreferencesRisk IndifferentRisk AverseRisk Seeking

Risk IndifferentThe attitude toward risk in which no change in

return would be required for an increase in risk

Risk AverseThe attitude toward risk in which an increased

return would be required for an increase in risk

Risk SeekingThe attitude toward risk in which a decreased

return would be accepted for an increase in risk.

Standard DeviationThe most common Statistical indicator of an

asset’s risk; it measure the dispersion around the expected value.

Coefficient of VariationA measure of relative dispersion that is useful in

comparing the risks of assets with differing expected returns.