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"In finance, risk is best judged in a portfolio context." Is this true? Why
Finance & Accounting
Pages 6 (1506 words)
Heading: In finance, risk is best judged in a portfolio context Name: Institution: Course: Tutor: Date: In finance, risk is best judged in a portfolio context Risk if a feature that is common in any business venture. The general definition of risk is the possibility that a chosen course of action will not end up as expected (i.
In such a case, if one project fails, the amount lost will be partially covered by the other project that succeeds. That way, one avoids losing all his or her money in one project. Investing in several projects to reduce the level of risk is referred to as spreading portfolio. Therefore, the term portfolio can be defined as a collection of investments that are held by an individual or by a company (Brealey, Myers & Allen, 2011). It is not easy to judge risk from a single investment. One investment may fail or it may succeed. There are a number of factors that contribute to the failure or success of a project such as the prevailing economic conditions, the type of project one has invested in, the geographical area where the project is established among others. Therefore, for one to correctly judge the risk in a certain area it is important to judge from a portfolio. This is especially applicable in the stock market. This essay gives a discussion in support of the statement “In finance, risk is best judged in a portfolio context”. Risk and return Every investor is usually concerned with the return associated with the project they invest in. Return is not realized immediately after investing, one has to wait for some time. Hence return is a future function (Brealey, Myers & Allen, 2011). The future is not always clear. ...
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