Ways to Minimize the Investment Risk

Degree of uncertainty on how likely the investor is to make money on an investment.

• Penalty

• Maturity

• Index

• Risk

Most investors are assumed ____________________.

• Risk Averse

• Risk Neutral

• Risk Moderator

• Risk Seekers

Which of the following help determine risk tolerance?

• Assets and liabilities

• Expected return and risk

• Net worth and risk capital

• Net worth and net earnings

Why do different investors estimate inputs differently? Because _____

• every investor has his/her own risk/return preferences

• every investor has access to different information about securities

• there is an inherent uncertainty in security analysis

• there is a random selection process used by individual investors

This means making research about the investment instruments, checking out the investment’s history, earnings’ growth, management team and debt load.

• Conducting due diligence

• Diversification of investment portfolio

• Determination of tolerance to different kinds of risk

• Monitoring of investments

Risk management strategy of combining a variety of assets to reduce overall risk in an investment portfolio.

• Conducting due diligence

• Monitoring of investments

• Determination of tolerance to different kinds of risk

• Diversification of investment portfolio

Regular reallocation of resources is necessary for control purposes.

• Monitoring of investments

• . Diversification of investment portfolio

• Conducting due diligence

• . Determination of tolerance to different kinds of risk

A collection of financial assets which an investor has decided to invest in.

• Diversification

• Portfolio

• Return

• Risk

Simple risk-return measure to compare various assets. It is computed by dividing the standard deviation of returns by the mean return.

• Variance

• Standard Deviation

• Sharpe Ratio

• Coefficient of Variation

Square root of the variance.

• Sharpe Ratio

• Standard Deviation

• Variance

• Coefficient Variation