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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.
- Current section: Introduction
- Learning outcomes
- 1 Risk aversion
- 2 Quantifying risk
- 3 Risk factors
- 4 Discounted cash flow and the net present value rule
- 5 Conclusion
- Keep on learning
Study this free course
Enrol to access the full course, get recognition for the skills you learn, track your progress and on completion gain a statement of participation to demonstrate your learning to others. Make your learning visible!
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 course 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
This free course includes adapted extracts from an Open University course which is no longer available to new students. If you found this interesting you could explore more free Business Studies courses or view the range of currently available OU Business Studies courses.
Copyright & revisions
Originally published: Thursday, 19th July 2012
Last updated on: Thursday, 11th February 2016
- Creative-Commons: The Open University is proud to release this free course under a Creative Commons licence. However, any third-party materials featured within it are used with permission and are not ours to give away. These materials are not subject to the Creative Commons licence. See terms and conditions. Full details can be found in the Acknowledgements and our FAQs section.
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