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please answer the following finance questions (Q&A) SHORT ANSWERS for finance investments class
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Running head: FINANCE INVESTMENTS SHORT ANSWERS
Finance investment short answers
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FINANCE INVESTMENTS SHORT ANSWERS
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Importance of understanding investment risk versus expected return
Risks, according to Campello and Matta, (2016), refer to the internal and external factors
that may ultimately affect the investment objectives either through them resulting in a loss or
lowering the expected profits hence negatively affecting the financial welfare of an investor.
The expected return, on the other hand, refers to the profits or losses that investors anticipate
on their investments that have an anticipated Rates of Return (ROR). According to Campello
and Matta, (2016), it is essential for an investor to understand investment risks since it is risks
that indicate the amounts of losses that an investor can get. Investment risks also correlate
with an expected return for the investment; in essence, the occurrence of risks may lead to
lowered returns making the expected return unattained.
The “Black Swan” problem
The "Black Swan" problem in finance refers to an extremely adverse event that has
significant micro-financial consequences, and that is nearly impossible to predict. The term
got popularized by Nassim Nicholas Taleb who was a Wall Street Trader. Nassim wrote
about the Black Swan concept in his book Fooled by Randomness in the year 2001 (Aven,
2015 p. 84).
What beta measures
Beta, which also gets referred to as the beta coefficient, is a standard measurement of
investment risk ...