January 2015
Beginner
480 pages
31h 42m
English
Content preview from Financial Management: Core Concepts, Third EditionBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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8.6 The Risk-and-Return Trade-Off
Now that we know the risk and expected return for an individual investment, how do we use this information to make a financial decision? With an expected return of 5.25% and a standard deviation of 2.68%, should Tim invest in long-term government bonds for the coming year? Just as with our earlier horse race example in which we would like to know the odds of all the horses before placing a bet, we also need to know the risk and expected return for all our potential investments. Only then can we make a prudent financial decision about which investment we will select. We need to know how much additional expected return an investment carries before we accept the additional risk that comes with it compared with other ...
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