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

Q: Explain the difference between unique risk and systematic risk

A: Answer

Q: How do an investment's required rate of return vary with perceived risk? Explain with an example?

A: Required rate of return refers to the rate which the investors expects from their investments. This…

Q: How do you decide if the variance is favorable or unfavorable?

A: The discrepancy between budgeted and actual amounts is known as a "variance" in the accounting…

Q: eristics?

A: Step 1   Risk is defined as an occurrence that harms financial performance and/or reputation as a…

Q: w does expected shortfal

A: Introduction : Value at risk (VaR) can be understood as the metric that measures the magnitude of…

Q: explain what is the risk-return principle with one example

A: The risk-return principle is a fundamental concept in finance that states that the potential return…

Q: Which one of the following measures is relevant for assessing exposure to systematic risk?

A: Systematic Risk: It refers to the risk caused by factors that are not in the control of an…

Q: What outcomes are possible with speculative risk?​

A: Speculative risk is a form of risk in which the outcome is unknown and there is a chance of both…

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: Which is risk in the context of financial decision making and performance? Does performance…

A: Risk in the perspective of financial decision making and performance differs as the company faces…

Q: What happens when Control Risk is below the maximum level?

A:

Q: How behavorial bias affect investment behavior?

A: Behavioral bias is the belief by the investors that unknowingly affects the investors investment…

Q: Which of the following is not recognized as a measurement of risk? O median Orange best case/worst…

A: Median and Range are not typically recognized as direct measurements of risk, while the other…

Q: What security provides a good estimate of the real risk-free rate?

A: A Treasury bill (T-Bill) is the short-term liability of US public debt supported for 1 year or…

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 information would be required to compute the risk-asset ratio under Basle I?

A: The risk asset ratio (RAR) measures the amount of a bank's total regulatory capital in relation to…

Q: What is a spending variance and what does it mean?

A: A variance means difference between actual and budgeted amounts. A spending variance is difference…

Q: How does Sampling Risk compare to Non-Sampling Risk?

A: Risk:   It is a probability of the financial statements being materially incorrect even though the…

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: 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: averse

A: Risk is involved in everything. Risks will be there right from the task that we do till the…

Q: Describe relationship between risk and profitability.

A: Risk and profitability have direct relation. Lower the risk, lower is the return and Higher the…

Q: Explain Key Statistical Relationships between Covariance and Correlation of Returns?

A: Covariance:It is defined as the statistical relationship between stock prices of stock that vary…

Q: What is the relationship of risk to the investment?

A: There is a direct relationship between risk and return in investment decision making. It means…

Q: What is meant by the phrase natural hedging againstexchange rate risk?

A: Hedging is a mechanism that is used to eliminate or minimize the risk of loss that is associated…

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 if the operational risk is considered a risk or uncertainty? Why? If it is a risk, how can…

A: Operational Loss:   The risk involved in failures of Man, Machine, Material, and Methods during…

Q: What are some possible reasons for a material price variance?

A: The reason for material price variance has been shown below

Q: Explain the difference between financial risk andbusiness risk.

A: Risk is referred as the chance of loss. An activity which leads to loss is termed as risk. The risk…

Q: What is idiosyncratic risk? How does it differ from market risk?

A: Idiosyncratic risk or unsystematic risk or specific risk is that risk which belongs to specific…

Q: What do you understand by risk and measurement of risk? Explain the factors that affect risk.

A: Risk:There is no particular definition of what risk actually is. In the layman words, it is defined…

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…

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.