Risk

RECENT NEWS
Clusterstock  43 min ago  Comment 
It's generally accepted that younger investors, who have more time to let their money ride out the market waves, have a higher tolerance for risk than their older counterparts. New data from investing app Openfolio found that investors under age...
Forbes  51 min ago  Comment 
Looking back to 71 days ago, PTC Therapeutics Inc (NASD: PTCT) priced a 3,000,000 share secondary stock offering at $36.25 per share. Buyers in that offering made a considerable investment into the company, expecting that their investment would go...
MarketWatch  3 hrs ago  Comment 
Fed's Kocherlakota: Dissented Wednesday because of downside inflation risk
Mondo Visione  3 hrs ago  Comment 
Nasdaq's BWise (Nasdaq:NDAQ), a global leader in enterprise Governance, Risk Management and Compliance (eGRC), announced today that it has been selected by PortoSeguro, one of Brazil's largest insurance companies, to help support its new business...
Mondo Visione  3 hrs ago  Comment 
Nasdaq (Nasdaq:NDAQ) announced today that it has been positioned as a Leader for its BWise solution, a global leader in Governance, Risk Management and Compliance (GRC) software, in Gartner's first Magic Quadrant for Operational Risk Management...
Insurance Journal  6 hrs ago  Comment 
MetLife Inc., the biggest U.S. life insurer by assets, was labeled a systemically important financial institution by a council of regulators and said it will consider whether to sue the government over the decision. The Financial Stability...
guardian.co.uk  7 hrs ago  Comment 
Do you make your own luck through hard work and perseverance? Or is it simply a case of right place, right time? How to find your perfect business idea Guy Kawasaki, former marketing guru for Apple and Google, believes a good idea is 10% hard...
Reuters  7 hrs ago  Comment 
European Central Bank officials are considering ways to ensure weak countries that stand to gain most from a fresh round of money printing bear more of the risk and cost.
The Economic Times  Dec 19  Comment 
The Bank of Japan (BoJ) kept monetary policy unchanged at the end of its two-day meeting on Friday and offered an upbeat view on the economy.




 

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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