Risk

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Forbes  6 hrs ago  Comment 
The state of California wasn't included in Tesla Motors' original list of four Southwestern states that were finalists to land its $5 billion gigafactory. But after officials appealed to CEO Elon Musk for the opportunity to make their case, he...
SeekingAlpha  Aug 31  Comment 
By Shareholders Unite: We have a feeling that things are going to be a bit more difficult from here. In no particular order: Putin, after a show summit with the Ukrainian president, seems to go all-in in Ukraine US consumption actually...
New York Times  Aug 30  Comment 
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New York Times  Aug 30  Comment 
Universities and colleges in the United States also admit that they have limited ability to track students’ travels or their health.
SeekingAlpha  Aug 29  Comment 
By Kevin Wrotenbery: Defining risk is hard, and not that useful. Most investors already have some intuition about what constitutes risk, and it's not an easy area in which to change people's minds. If we adopt Warren Buffett's model where every...
Financial Times  Aug 29  Comment 
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Financial Times  Aug 29  Comment 
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The Hindu Business Line  Aug 29  Comment 
Alternatives to conventional smoking such as e-cigarettes may still pose a risk to human health due to overuse, a new research has warned.Cigarette smoking is the leading cause of preventab...
Times Online  Aug 29  Comment 
Children who survive cancer are at risk of dying in middle age because of toxic side-effects stemming from their original...




 

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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