Risk refers to the uncertainty regarding the actual outcome of an investment compared to the expected outcome. It does not equate to the risk-return tradeoff, nor does it imply that risk should be ignored in investment analysis. The statement that investors require additional returns for additional risk relates to the risk-return tradeoff, not the definition of risk itself.

Solved

Risk

Question 6

Multiple Choice

Risk:

A) is the same as risk-return tradeoff
B) is the possibility that the actual result will differ from the expected outcome
C) states that investors require additional expected returns for taking on additional risk
D) doesn't need to be considered when analyzing a potential investment

Correct Answer: