risk and reward Flashcards
(25 cards)
What is the definition of ‘risk’ in the context of business?
Risk is the potential for loss or damage when investing or making business decisions.
True or False: Reward is the potential gain from an investment or business decision.
True
Fill in the blank: The formula for calculating reward is __________.
Reward = Gain - Cost
What is the relationship between risk and reward?
Generally, higher risk is associated with the potential for higher reward.
Multiple Choice: Which of the following is NOT a type of risk? A) Market Risk B) Operational Risk C) Fixed Risk
C) Fixed Risk
What is an example of a financial reward?
Profit from selling a product or service.
True or False: Diversification can help reduce risk.
True
What does ‘risk assessment’ involve?
Evaluating potential risks and their impact on business decisions.
Fill in the blank: A __________ is a formal evaluation of the risks associated with a project.
Risk Assessment
Multiple Choice: Which of the following factors can influence risk? A) Market Conditions B) Company Size C) Both A and B
C) Both A and B
What is a common method for managing risk?
Insurance
True or False: All risks can be eliminated in business.
False
What does ‘expected reward’ refer to?
The anticipated gain from an investment or decision based on probability.
Fill in the blank: The __________ of an investment is often measured by its return on investment (ROI).
Reward
Multiple Choice: Which action is typically considered high risk? A) Investing in bonds B) Starting a new business C) Saving in a bank
B) Starting a new business
What is ‘systematic risk’?
Risk that affects the entire market or economy.
True or False: Non-systematic risk can be reduced through diversification.
True
What does ‘risk tolerance’ mean?
The degree of variability in investment returns that an individual is willing to withstand.
Fill in the blank: High reward investments often come with __________ risk.
High
Multiple Choice: Which of the following is a characteristic of low-risk investments? A) High volatility B) Predictable returns C) High potential returns
B) Predictable returns
What is the purpose of a risk management strategy?
To identify, assess, and prioritize risks to minimize their impact.
True or False: Risk and reward are always directly proportional.
False
What is a ‘risk premium’?
The extra return expected by an investor for taking on additional risk.
Fill in the blank: Investors often seek a balance between risk and __________.
Reward
