abhishreshthaa
Abhijeet S
Risk
• Risk can be defined as the variability in the actual return emanating from a project in future over its working life, in relation to the estimated return that was forecasted at the time of selecting the project. The greater the variability between the actual and estimated return, the more risky is the project.
• The financial decisions of the firm are inter-related and jointly affect the market value of its shares by influencing the return and risk of the firm. The relationship between return and risk can be simply expressed as: Return = Risk-free rate + Risk premium
• A proper balance between return and risk should be maintained to maximize the market value of a firm’s shares. Such a balance is called risk-return trade off. The finance manager, in a bid to maximize the shareholder’s wealth should strive to maximize returns in relation to the given risk and should seek courses of actions that avoid unnecessary risks.
• Risk can be defined as the variability in the actual return emanating from a project in future over its working life, in relation to the estimated return that was forecasted at the time of selecting the project. The greater the variability between the actual and estimated return, the more risky is the project.
• The financial decisions of the firm are inter-related and jointly affect the market value of its shares by influencing the return and risk of the firm. The relationship between return and risk can be simply expressed as: Return = Risk-free rate + Risk premium
• A proper balance between return and risk should be maintained to maximize the market value of a firm’s shares. Such a balance is called risk-return trade off. The finance manager, in a bid to maximize the shareholder’s wealth should strive to maximize returns in relation to the given risk and should seek courses of actions that avoid unnecessary risks.