Risk and Uncerainty

Question	Answer
Risk	When the frequency of risky events can be calculated
Uncertainty	Implies an inability to predict
Why do firms willingly take risks?	So that they can make profits.
What is risk?	Risk exists where there are uncertainty and one or more possible outcomes affects the business. It can be an opportunity or a threat.
What is Risk Appetite?	Corporates accept risk associated with their core competences. ( they do not hedge against these risks). Therefore, there is highest risk appetites where people feel more in control.
Capital structure and investor risk appetite.	Investors provide either equity or debt. Equity: riskier for the investor, but with higher return. Debt: less risky fir the investor, but offers a lower return. Debt holders want low risk: interest is maximum reward>
Modern portfolio theory and risk	Investors prefer higher return for equal risk. Investors prefer lower risk for equal return.
Risk Management Framework	Image: Framework (image/png)

Resource summary

	Created by f.yafai over 10 years ago