REVISION-RISK & RETURN

WHICH IS WRONG ABOUT RISK?

• HIGH RISK HIGH RETURN

• RISK IS UNCERTAINTY ABOUT FUTURE RETURN

• THE GREATER RANGE OF POSSIBLE EVENTS,THE LOWER THE RISK

• Risk is the chance that the actual return deviate from the expected return.

TOOLS USED TO MEASURE ABSOLUTE RISK

• STANDARD DEVIATION

• COEFFICIENT OF VARIATION

• BETA

• COST OF CAPITAL

Unsystematic Risk known as risk that can diversify/ non-market risk /controllable risk

• TRUE

• FALSE

example of market risk ......

• labour strike

• consumer preference

• currency fluctuation

Portfolio risk refer to the

• risk of holding or invest into 1 type of   investment

• risk for holding or invest into 2 or more types of investments

• risk of carrying high risk investments

• risk of buying unknown investments

Refer to the investor........

• risk seeker

• risk averse

• risk indifference

Probability = 15%; Return = -5%

Probability = 20%; Return = 10%

Probability = 30%; Return = 15%

Probability = 35%; Return = 25%

CALCULATE THE EXPECTED RETURN

• 15%

• 15.5%

• 14%

• 14.5%

If employees of a company go on strike, this is an example of which types of investment risk?

• Diversifiable risk

• Non-diversifiable risk

• market risk

• political risk

Event 1: BNM announced an increase in interest rate resulted an increase of 1% company's cost of financing.

Event 2: A fire caused by an accident at one of the company's store resulted in a huge loss for the company.

Determine the type of risk that can be associated to each of the events.

• Unsystematic risk and Unsystematic risk

• Unsystematic risk and Systematic risk

• Systematic risk and Systematic risk

• Systematic risk and Unsystematic risk

Below are all types of return except:

• Possible return

• Required return

• Actual return

• Expected return