Essays on Risk and Return Assignment

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The paper 'Risk and Return' is a perfect example of a business assignment. Risk is defined as the prospect of losing some or all of your assets invested in a business. This may arise when the actual returns on investment are lower than the anticipated returns. All investments involve a level of risk. When making a decision on how to invest, it is important to understand the risk associated with the investment to choose whether you are ready to take the risk. Returns are the profitability measure in an investment that evaluates the performance of a business by dividing net profit by net worth.

Returns take many forms, including interests, capital appreciation, and dividends. Returns are significantly affected by income tax, which reduced the amounts of your returns and inflation, which reduces the value of your return. Risk and return are directly related. The relationships are represented by trade-offs. The more risk is taken, the greater the possible results. A good example is a lottery ticket: a high risk is taken of one losing their money but there is an extreme possibility of high reward in terms of the giant checks.

On the other end are options such as saving your money in a bank account where the risks of losing your money are minimal but the interest rates are so low. The business value is measured by the available stock, superior management, sales, and earnings growth. When these factors are high, the business value can be rated very high as compared to a business with less success based on its earnings and its sales. In financial terms, an asset is any resource that can be utilized for economic gain.

Any resource, either tangible or intangible that can be owned or controlled to produce positive economic value is considered a resource. Financial assets include bonds, stocks, and real estate properties. Market value equals what one can get for a particular financial asset from market quotations. It is based on today’ s expectations of a company’ s future operational and financial outcome. For small companies, it is what investors are willing to pay to buy all or some shares in a company. Stock market values are the total sum of the stock price, times the outstanding stock.

For publicly held companies, the price is easily determined because the stocks are traded in the stock market (STIMES, 2011, 127). Intrinsic value is, therefore, described as the asset's true value and is independent of market value. It is the fundamental value that cannot be readily proven. Intrinsic value, therefore, is the internal estimates of your company’ s worth or value. All applicable information and data are incorporated to value your company even if the insiders are the only people who have the full information.

For example, when all the stockholders are asked to each value their company, each would come up with an intrinsic estimate, but most likely with varying results. The price that investors are willing to pay for stocks in a company depends on what they think if the company itself. Whether they place high, low or an average amount depends on what the investor thinks the stocks are worth. Such calculations determine the buying and selling decisions of stocks. The supply and demand of stocks, therefore, set the market price.

References

STIMES, P. C., 2011, Equity Valuation, Risk and Investment a Practitioner's Roadmap. Chichester, John Wiley & Sons.

Available from. http://public.eblib.com/choice/publicfullrecord.aspx?p=708507. Last accessed on 12th February 2013

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