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Investment risk

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Risk, in a financial context, is a synonym for uncertainty. This free course will allow those with some background knowledge of the area to explore investment risk. You will examine how and why investors are risk-averse and look at the risk factors involved in making a decision to invest.

After studying this course, you should be able to:

  • explain the concept of risk in an investment context
  • comment critically on the impact of the principal risk factors in a given investment context.

By: The Open University

  • Duration 6 hours
  • Updated Thursday 14th January 2016
  • Advanced level
  • Posted under Business Studies
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Investment risk

Introduction

Unit image

A fair return on investment is defined as one that compensates the investor for the risk incurred in making the investment – neither more nor less. Conversely, an excess return is one that over-compensates the investor for the risk incurred. Investors want to avoid investments that pay less than a fair return, while borrowers want to avoid paying an excess return. In this unit we shall:

  • define more precisely what we mean by ‘risk’ in a financial context;

  • consider how investors react to the presence or threat of risk;

  • develop a method of quantifying risk mathematically; and

  • look at the main factors contributing to investment risk in the real world.

Finally, we shall see how the use of the net present value rule enables investors to calculate whether the risks they incur are adequately rewarded.

This OpenLearn course provides a sample of postgraduate study in Business [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)]

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