CH 0 - 4 Risk – the story so far

Question 1

1. Investment Risk:

Answer 1

• Defined as the uncertainty in investment outcomes.
• Often measured using variance or volatility of returns.
• Higher variance = higher investment risk.

🟦 Examples:

• Investment Risk: An equity fund with returns varying from –10% to +20% has higher risk than a fixed deposit with steady 6% return.

Question 2

2. Credit Risk:

Answer 2

• Risk that a person or organisation fails to make promised payments.
• Common in loans and bonds.

🟦 Examples:

• Credit Risk: A company issues corporate bonds but fails to pay interest on time or defaults on repayment.