Risk in finance:
A)is variability in return.
B)can be decomposed into business-specific and market components.
C)will be accepted by some investors if higher expected returns are offered in compensation.
D)All of the above

Question

Quizplus · Accepted Answer

All of the options A, B, and C are correct.

A) Risk in finance refers to the variability in returns. Higher variability means higher risk, and therefore higher returns are expected to compensate for the additional risk.

B) Risk can be broken down into business-specific and market components. Business-specific risk is related to the specifics of the company's operations, while market risk is related to overall market factors that affect all investments.

C) Some investors may be willing to accept higher risk if they expect higher returns as compensation. This concept is often referred to as the risk-return tradeoff.

Risk in Finance