Risk

RECENT NEWS
The Economic Times  4 hrs ago  Comment 
Can it go up further from here, possibly but from here on, the risk return profile begins to get a little more dicey at least for the near term.
Mondo Visione  5 hrs ago  Comment 
NASDAQ OMX's BWise (Nasdaq:NDAQ), a global leader in Governance, Risk Management and Compliance (GRC), announced today that it has been selected by Folksam, one of the largest insurance companies in Sweden, to support their incident and...
Financial Times  7 hrs ago  Comment 
Growth in UK sales driven by high street retail operations, which were ahead of the Directory’s internet and catalogue business for the first time in five years
The Economic Times  8 hrs ago  Comment 
The government's budgetary constraint may take a toll on the commerce department's move to offer export scheme benefits to units in special economic zones.
Insurance Journal  Sep 10  Comment 
San Diego, Calif.-based Champion Risk & Insurance Services L.P. announced that Marc Crawford has joined the firm as a producer. Prior to Champion Risk, Crawford worked for the Leavitt Group, where he handled complex risk solutions and worked with...
MedPage Today  Sep 10  Comment 
(MedPage Today) -- Statin use before a diabetes diagnosis was not associated with an increased risk for microvascular complications and may offer some protection against diabetic eye and nerve damage, registry data suggest.
NPR  Sep 10  Comment 
Something as simple as eating fish can help lower the risk of hearing loss, researchers say. All types of fish helped. And since many people don't eat fish at all, there's an opportunity here.
SeekingAlpha  Sep 10  Comment 
By NinePoint Advisors: Are you a risk-taker? To realize rewards, you usually have to take some risks, especially when it comes to finances. But beyond understanding that investment risk and reward go hand in hand, it’s important to know how they...
SeekingAlpha  Sep 10  Comment 
By James Picerno: It's hard to overestimate the power of volatility for monitoring, modeling and forecasting risk in the art/science of portfolio management. The challenge is deciding what to focus on. Even the seemingly simple task of defining...




 

Risk in economic terms indicates the probability of the occurance of a specific event, which would lead to damage or loss (p.e. the likelihood of losing ship and freight to a hurricane). In distinction to risk, chance indicates the possibility of a positive outcome.

Investments include both risk and chance. This is the so called Risk-Return Tradeoff: low levels of uncertainty offer low potential returns but also low potential losses, whereas high levels of uncertainty offer high potential returns but also high potential losses. Another way many investors quantify and calculate risk is in terms of the standard deviation of returns. This is because all else being equal, risk averse investors prefer returns that are less volatile and more predictable.

Companies try to identify, analyse and control risk through concepts of risk management.

Risks of Bond Investing

Bonds carry credit risk ("will I get my money back?"), prepayment risk, liquidity risk and interest-rate risk.

  • Many bonds give the bond issuer the right to repay the bond early -- which happens more often when rates are low, in other words, just when you don't want your money back. This is prepayment risk.
  • Liquidity risk is the risk that you won't find a good price for your bond when you want to sell it -- because there are so many more bond issuers than stock issuers, and because bonds are not exchange-traded, there may not be a willing buyer.
  • Interest-rate risk is the opposite of prepayment risk: when rates go up, the value of your bond will drop (it drops more, the further away it is from maturity). If your circumstances change and you need to sell the bond before maturity, you can lose capital that you would otherwise receive, if you held the bond to maturity.
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