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

Q: Which Variable Is most critical in Sensitivity Analysis?

A: Sensitivity analysis helps to analyze the project by considering different variables. It helps…

Q: What determines the acceptable level of Detection Risk?

A: Detection Risk:   It is a chance that an auditor will fail to identify any material misstatement…

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: Risk management focuses on what?

A: Organizations assess the stakeholder’s responses as risks or opportunities which would affect the…

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: What are the different variables in sensitivity analysis?

A: Answer: Under a given set of expectations, a sensitivity analysis describes the way different values…

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: What is the difference between covariance and correlation?

A: Co-variance: A co-variance is nothing but a descriptive measure of linear interaction intensity…

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: 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: How behavorial bias affect investment behavior?

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

Q: What is risk, and how does it affect decisions about investment?

A: Risk and return are related to each other while making 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: How does the use of scenarios differ from sensitivity analysis?

A: Sensitivity analysis and scenario analysis are the assessment techniques that are used in investment…

Q: Define control risk and detection risk. What is the difference between control risk and detection…

A: Auditing:   In auditing, auditors verify the correctness and fair presentation of financial…

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 is an activity variance and what does it mean?

A: Variance: Variance refers to the difference level in the actual cost incurred and standard cost. The…

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…

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.