Why is the variance (or standard deviation) used as a measure of risk? What are the advantages and disadvantages of this risk measure?

Q: What are quantitative measurements versus non-quantitative measurements with respect to risk?

A: Risk is used to describe the probability or uncertainty related to a future event with a favorable…

Q: Explain the difference between a linear risk and a nonlinear risk.

A: Linear risk is an enterprise's risk, based on the traditional economic system of "take-up-dispose."…

Q: Basic Elements of Risk-Adjusted Returns?

A: Introduction: Risk adjusted return is a methodology for calculating and evaluating the returns on an…

Q: What type of risk is measured by the standard deviation?

A: Standard deviation is the measure of risk that the actual return of an investment will deviate from…

Q: Is funding a type of risk?

A: Funding means providing the funds to the party and charging interest rates from them. Firms need…

Q: Which is riskier lower IRR or a higher IRR? Please explain and incorporate differences in risk based…

A: According to the internal rate of return (IRR) rule, a project or investment should be undertaken if…

Q: What is the difference between positive and negative predictive value?

A: Positive predictive value is the probability that subjects with a positive screening test truly have…

Q: Discuss the Beta of  as measure of systematic risk.

A: In finance systematic risk refers to that risk which is inherent to the entire market. As the risk…

Q: Explain Measures of Variance and Risk?

A: Variance tests normal or normal variability. Variability is volatility for investors, and volatility…

Q: What is standard deviation? What type of risk does it measure

A: Standard deviation measures the risk of an investment regarding how it will fluctuate or deviate…

Q: What risk does Beta measure?

A: There are two types of risks: 1) Systematic risk 2) Unsystematic risk 1. Systematic risk : It is…

Q: Why is it important to be able to quantify risk?

A: Risk is the chance that an outcome of an investment's actual gain will differ from an expected…

Q: Explain the significance of BETA as a measure of Systematic risk.

A: Beta is a metric that is used by investors for the purpose of analyzing the risk of a security or…

Q: For any given distribution of outcomes and probabilities, describe how preferences over risk affect…

A: An outcome is a potential result of an experiment in probability theory. The likelihood of an event…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.