Relationship between risk and return.
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Analyze and explain the relationship between risk and return in financial markets. As an investor what would some of your expectations be with regard to a high risk investment and low risk investment?
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This explains the relationship between risk and return.
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Return is income earned on the investments. For example In stocks income is earned either by way of dividend or capital gain.
Risk is the uncertainty that you may not earn your expected return on your investments. For example, you may expect to earn 20% on your stock mutual fund every year. But your actual rate of return may be much lower. For example, the S&P 500 index averaged yearly gains of about 20% for the five years that ended in 1999. In 2000, however, the index declined more than 9%. Bonds, meanwhile, performed better than stocks for the first since 1994.
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