Running Head: RISK & RETURN 1
Risk and Return
Student’s Name, Middle Initial(s), Last Name
Institution Affiliation
Course Number and Name
Instructor’s Name
Assignment Due Date
, RISK & RETURN 2
Risk and Return
Investment Risk
Financial investment typically comes with significant risk. In this light, conventional
wisdom asserts that an individual or entity can earn higher returns by engaging in more risk.
Conversely, veteran investors stipulate that learning to effectively manage risk is the steadiest
strategy for making profits (Schoenmaker & Schramade, 2019). Nevertheless, the common forms
of risks that impact financial investment include:
• Business Risk-This denotes the uncertainty and potential loss linked to
investing in a given firm’s equity or stock (Schoenmaker & Schramade, 2019). The risk
can encompass the underperforming earnings reports associated with changes in quality
management, leadership, industry conditions, and even the firm’s competitive
positioning.
• Economic Risk- This denotes the potential reduced returns or loss
emanating from macroeconomic aspects that impact the broader economy or financial
markets (Schoenmaker & Schramade, 2019). An epitome involves the occurrence of a
recession or disaster like the recent pandemic. These negatively impact financial
investments through a decline in the stock price. This is also closely tied to the
political risks linked to political instability.
• Inflationary Risk- This risk typically can undermine the real value of
returns alongside the investors’ purchasing power. In essence, it encompasses
inflation surpassing the returns, leading to a decline in the inflation-adjusted value
over time.
Investment Return
Risk and Return
Student’s Name, Middle Initial(s), Last Name
Institution Affiliation
Course Number and Name
Instructor’s Name
Assignment Due Date
, RISK & RETURN 2
Risk and Return
Investment Risk
Financial investment typically comes with significant risk. In this light, conventional
wisdom asserts that an individual or entity can earn higher returns by engaging in more risk.
Conversely, veteran investors stipulate that learning to effectively manage risk is the steadiest
strategy for making profits (Schoenmaker & Schramade, 2019). Nevertheless, the common forms
of risks that impact financial investment include:
• Business Risk-This denotes the uncertainty and potential loss linked to
investing in a given firm’s equity or stock (Schoenmaker & Schramade, 2019). The risk
can encompass the underperforming earnings reports associated with changes in quality
management, leadership, industry conditions, and even the firm’s competitive
positioning.
• Economic Risk- This denotes the potential reduced returns or loss
emanating from macroeconomic aspects that impact the broader economy or financial
markets (Schoenmaker & Schramade, 2019). An epitome involves the occurrence of a
recession or disaster like the recent pandemic. These negatively impact financial
investments through a decline in the stock price. This is also closely tied to the
political risks linked to political instability.
• Inflationary Risk- This risk typically can undermine the real value of
returns alongside the investors’ purchasing power. In essence, it encompasses
inflation surpassing the returns, leading to a decline in the inflation-adjusted value
over time.
Investment Return
