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Risk and return Instructions The return investors require for an investment depends on the risk associated with that investment. This is one of the fundamental relationships in finance.

Due to the existing differences in risk tolerance levels between different groups of investors, some demand a higher return as compensation for the risk assumed, others demand a high return regardless of the associated risk they may face, and others have a high risk tolerance. and they even prefer the highest risk regardless of the return it generates.

Discuss the relationship between risk and return. Argue about what type of risk preference could add the most value to an investment.

In stating your answer, you should:

Define the concepts of risk and return. Describe and analyze the three types of risk preferences and their impact on return on investment. Indicate how the financial manager measures risk and return.