This not only a topic. risk and return is widely prevalent concern among Investors. We need to understand as Risk and returns as a Investors as well as a Manager Risk aversion, the investor like return and Abhor risk; commonly people invest relatively risky asset only if they expect to receive high return- the higher the risk the higher the return investor asks. in this blog we are gonna tell you what the exact risk means as it relates to investments. in our series of blogs related to risk and return, we will elaborate the relationship between risk and return with their concepts.
Today’s if an individual and business invest some money with the expectation of more return in the future. And, there are ample of risky investment (Risk and returns).
Return On Investments
With the help of return concept, it become convenient for investors to express the financial performance of an investment and easy to understand.
Assume you had bought 10 shares of stocks for thousand rupees. The stock paid no dividend, but at the end of one year, you sell the stock for 1100 rupees.
Here you can find the return on investment in rupees wild deducting the amount you invested from the amount you received at the end of one year.
Rupees Return = Received Amount – Invested Amount
= 1100 Rs. – 1000 Rs. = 100 Rs
in the contrary if you invest 1000 rupees and you are getting 900 Rupees, your return will be -100.
It is easy to express return on investment in rupees but there is two the problem first is timing when the investment occurs and the second is the size of the investment. If you want to make and bring a meaningful result you need to know the size and the timing of the investment. Let’s take an example if you have invested 10000 rupees and you are earning a hundred rupees as a return after 1 year then we can call it a poor investment.
You also consider time such as if you are investing hundred rupees and getting bag hundred rupees also has a return in a 1 year it is a good investment. But if you are 100 rupees back in 10 years this is a bad investment..
It the solution to these care and timing problems is to express investment result as rates of return, for percentage return. For example, the rate of return on the first-year stock investment when 1100 rupees is received after 1 year coma is 10%.
Rate of return = (amount received – amount invested)/ Amount Received
Stand Alone risk and portfolio risk
As per Oxford risk is defined as the cause of something or somebody. And is a term that is specially calculated risk with someone is able to take while considering to get a high return. Thus, risk refers to a chance that some unfavourable incident a occur. In a term of investment in financial asset and a new project, unfavourable condition indicates that you are getting low interest on low return then you expected.
You can analyze a set risk from two ways-:
1. From stand-alone basics, here at that consider isolation and alone
2. Portfolio basics, where the asset is held as one of a number of an asset in a Portfolio.
Therefore the standalone risk (risk and return), if there is an investor, would face if she had invested in one particular asset. There are many a set and measure theory of Assets and portfolios but to become familiar to stand-alone risk, in order to understand portfolio context.
What are the difference between rupees return and rates of return?
Why are the rates of Return superior to rupees to return when comparing potential is meant?
If you are investing 5000 rupees and after one year you are getting back 6000 rupees, find your annual rate of return?