5 Conclusion In a financial context, risk is a synonym for uncertainty – the possibility that the actual outcome will differ from the mean expected outcome. It is therefore a neutral rather than a negative concept. Investors are risk-averse in the sense that they require more return for taking on more risk. Risk itself is measured by the standard deviation of actual returns around the mean expectation. In the real world, investment risk is created by a number of different factors that affect the certain
3.5 Default or credit risk This is the risk that contractual returns will not be paid because the borrower's financial situation has deteriorated to the point that it is no longer able to service the debt. It is possibly the commonest type of risk in commerce generally, and you are probably familiar with it in some shape or form. It affects many areas of business decision-making over and beyond the specialised world of investment risk and return. Most large companies devote significant resources to the identification,
2.2 Calculating returns Our first question was: what is the mean expected total return for next year? We calculate this by taking each of the possible returns and weighting it by its relative probability. As our table is so simple and symmetrical, it is not difficult to see that the weighted mean return is 7% per annum. Our second question was: what is the degree of risk or uncertainty in this mean figure? In other words, how widely dispersed are the possible outcomes around the mean expected outcome? The most
1.2 Are investors risk-averse? We will define ‘risk premium’ as an extra reward required by investors to compensate for perceived uncertainty in the amount or timing of an expected return. But do investors in fact require an extra premium for uncertainty, or is this perhaps just a convenient assumption? The following activity is designed to give you an opportunity to test your own reactions. Introduction A fair return on investment is defined as one that compensates the investor for the risk incurred in making the investment – neither more nor less. Conversely, an excess return is one that over-compensates the investor for the risk incurred. Investors want to avoid investments that pay less than a fair return, while borrowers want to avoid paying an excess return. In this unit we shall: define more precisely what we mean by ‘risk’ in a fi 9 Summary This unit has focused on planning a project. At this stage you may find it useful to recap on the learning objectives introduced at the beginning of the unit and to think about some of the issues associated with them. You should now be able to develop plans with relevant people to achieve the project's goals. This will involve identifying and finding ways of including the appropriate people in the project. You should be able 7.6 Who should estimate? The person managing the project is not necessarily the best one to prepare the estimates, although they should be closely involved, both as a source of information and because they need a clear understanding of what the estimates mean and what the estimators assume about outputs, inputs and the transformation process. If there are others who have more experience or more knowledge about some of the areas of work, these people may be the best ones to make estimates for the project or parts of i 5.1 Introduction One of the most difficult aspects of planning a project is estimating how long it will take to complete each key stage. An estimate might be based on: the size of the tasks and the effort required to complete them; the number of days that are not available for working on the project; historical data from other projects, including the experience of colleagues. Where a project has a fixed end-date (for 6.6 Professional bodies and societies Consider joining a learned society or professional organisation. They can be very useful for conference bulletins as well as in-house publications, often included in the subscription. Don't forget to ask about student rates. Try looking for the websites of learned societies associated with your subject area (e.g. The Royal Society, the Institute of Electrical 5.3 Desktop search tools Finding your paperwork or electronic files can be a problem. You may find that even if you do have some sort of filing system, your structure soon gets quite large with files in multiple locations, which can be hard to navigate. You may find yourself making arbitrary decisions about which folder to place a document in. It may make sense now but in the future, when you look where you think it should be, it’s not there. At times like this you may resort to the search command from the Wi 4.7 T is for Timeliness The date when information was produced or published can be an important aspect of quality. This is not quite as simple as saying that 'good' information has to be up to date. Here is an example of a news item from an onli 4.4 O is for Objectivity One of the characteristics of ‘good’ information is that it should be balanced and present both sides of an argument or issue. This way the reader is left to weigh up the evidence and make a decision. In reality, we recognise that no information is truly objective. This means that the onus is on you, the reader, to develop a critical awareness of the positions represented in what you read, and to take account of this when you interpret the information. In some cases, authors may be 4.2 P is for Presentation By presentation, we mean, the way in which the information is communicated. You might want to ask yourself: Is the language clear and easy to understand? Is the information clearly laid out so that it is easy to read? Are the fonts large enough and clear? Are the colours effective? (e.g. white or yellow on black can be difficult to read) If there are graphics or photos, do they help 3.10 Summary There is a lot of information available on business and management via the internet. Try the activity below to start exploring what is available. Use the Author(s): 3.7 News sources Many news sources are now available online. Searching an online version of a newspaper is easier, quicker and more effective than searching through printed indexes, microfilm or actual newspapers.
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