25 Sep 2022


Risk and Return: What You Need to Know

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Academic level: College

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Can we ever have any return without some type of risk? 

It is not possible to achieve returns without some type of risk being involved whether business, financial or a different kind. One is not always guaranteed of a large return following large risks even though it is the case in some instances (Hickman, Byrd & McPherson, 2013). It depends on the form of risk incurred especially in terms of debt. Using debt instead of just equity. Debt increases risk by adding financial risk to business risk. Risk and reward are also highly affected by the economic cycle. During economic thrive, risk on debt is usually lower and increases with increase of the same during a downturn. 

What other factors play into risks that are not covered in the video? 

Among other factors that play into risks include changes in inflation that have not been anticipated, residual market risk, change in interest rates and their structures, in just as well as change in risk by default (Hickman, Byrd & McPherson, 2013). 

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When have you had to consider risk and return in personal or professional decision-making? 

In personal decision making, risk and return considerations occur often. Professionally, I have had to advice an older relative on purchasing stocks. I explained that returns on stocks were likely to be higher with companies that operated on debt and during economic thrive. The person agreed to purchase stocks for a company whose Beta coefficient appeared to adjust best to swings in the market. I encouraged him to purchase undervalued stocks for a company who’s PE I was certain was not a result of poor performance and insisted that the high risk would bring in more returns. I explain however that high risk high return is not always the way to go and that at times it is necessary to invest in low risk. 


Hickman, K. A., Byrd, J. W., & McPherson, M. (2013). Essentials of finance [Electronic version]. Retrieved from  https://content.ashford.edu/ 

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StudyBounty. (2023, September 15). Risk and Return: What You Need to Know.


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