Risk $isan$ important concept affecting security prices and rates $of$ return. Risk $is$ the chance that some unfavorable event will occur, and there $is$ a trade$-$off between risk and return. The higher $an$ investment$s$ risk, the

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the return required $to$ induce investors $to$ purchase the asset. This relationship between risk and return indicates that investors are risk

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; investors dislike risk and require

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rates $of$ return $asan$ inducement $to$ buy riskier $securities.A$

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represents the additional compensation investors require for bearing risk; $itis$ the difference between the expected rate $of$ return $on$ a given risky asset and that $on$ a less risky asset. $An$ asset$s$ risk can $be$ considered $in$ two ways: $On$ a stand$-$alone basis and $in$ a portfolio context.