Risk and Reward - Impact, Probability and Features of Risk

Jevgenija Zukova
Flashcards by Jevgenija Zukova, updated more than 1 year ago More Less
Jevgenija Zukova
Created by Jevgenija Zukova over 3 years ago
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>Risk and reward trade off >Features of risk > Risk of financial products > Interest rates and risk/reward >Attitudes to risk and financial planning > Impact and probability of risk

Resource summary

Question Answer
The greater the risk... ...the greater the reward! :D
The greater the reward... ...the greater the risk. :/
What are the features of risk? >Physical injury or death >Loss of or damage to possessions >A legal liability >A financial loss
With what the risk is associated? >Uncertainty - we don't know the future. >Probability - situation can higher the risk. >Chance - speculative risk. >Unachieved expectations - failed plans.
Why a person would take a risk? It's worth it! >A person receives their reward(assuming that probability of risk is low) >Higher risk must give higher return >An individual is risk tolerant/averse (depends on the probability of risk)
How risky is current account? Little-bit risky = as long as you are not overdrawn, you're safe(FSCS)!
How risky are premium bonds? SAFE! =100% backed by the government *but probability of wining cash is small x)
How risky is saving account? Little bit :/ If you don't put money into the account for few months, the interest is lost -_- And you lock up your money. (Too bad, you can't make rain out of it ) :c
How risky are unit trusts? Quite risky =value can go up and down(stock market movements) *however, the risk is spread over many different companies = possibility of good return
How risky are shares? VERY RISKY in newly quoted company. Quite risky in an established company.
How the risk applies to interest rates? 1. Interest rates varies. =people who own shares hopes that the price of shares will rice at the stock market. +dividends 2. If a person wants to have greater interest rate on their investment, they will take greater risk = saving for medium term.
What's the trade off of risk/reward for a person, who is borrowing medium-long term? Risk = may be unable to keep up with their repayments (inflation). Reward = will be able to buy a property or other product.
Are people are just risk tolerant and averse? No, they have different degrees of risk acceptance. e.g. high risk acceptance, average risk tolerance, risk averse, highly risk averse.
How do you transfer the risk? INSURANCE *some people may not take insurance for some things because they believe that they can deal with it without help.
IMPACT OF RISK 1. The amount of money involved 2. The effect on lifestyle 3. The timing of the event 4. The frequency of the event
PROBABILITY OF RISK Probability x Impact = Degree of risk It means how likely it is that it will happen. Impacts = external and internal factors
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