Investment Risk Assessment

• Risks refer to chances that the outcome of an event is unfavorable or undesirable.
• Returns refer to yields or earnings on an investment.
• Systematic risk is also called undiversifiable risk, or market risk.
• Unsystematic risk is sometimes called diversifiable risk.
• Some risk assessment methods include loss of principal and/or interest payments, probability, and volatility and variability.

Methods to assess risk

• Loss of principal and/or interest payments is the simplest and most conservative way to assess risk.
• Probability helps quantify the chances of different outcomes.
• Volatility refers to how much an asset's price fluctuates over time.
• Variability is similar to volatility but broader.
• Range is the highest data minus the lowest data.
• Mean is also known as the arithmetic average.
• Variance is a measure of how close the scores are in the data.
• Standard deviation is a measure of how spread out numbers are.
• Assessments of counterparty risk pertains to counterparty risk, which includes default risk.
• Actuaries play a major role in identifying, measuring, and managing risk

Concerning Returns

• Returns are the revenues, earnings, and yields.
• Net cash flows refer to the difference between the cash flows.
• Rate of return is used to compare the outcomes of different investments.
• Expected returns are the future cash flows.
• Terminal value is the maturity value of an investment.
• Present values are the discounted value of the future returns.
• Rate of return is the ratio of the net cash flows and the principal or initial investment.
• Expected returns are returns expected on an investment
• Unexpected returns are gains or losses caused by unforeseen events.
• Interest rate denotes percentage earnings or yield on investment.

Types of demand

• Transaction demand involves payment for expected expenditures like purchases of goods.
• Precautionary demand involves holding money in preparation for unforeseen events.
• Speculative demand pertains particularly to businessmen and investors.
• Velocity of money is the average number of times.
• Interest is the amount paid in addition to the principal for the use of money.
• Interest rate refers to the percentage of the principal.
• Nominal interest rate is the simplest type of interest rate.
• Real interest rate states the "real" rate that the lender.
• Fixed interest rate means that the interest rate charged will not change over the term of the loan.
• Variable interest rate is also called floating rate.

Determinants of interest rates

• Inflation expectations
• Monetary policy
• Business cycle
• Government budget deficits
• Time value of money is the concept that the value of peso is to be received in the future
• Interest is the cost of borrowing money, where the borrower pays a fee to the owner.
• Compound interest is calculated by multiplying the principal amount by one plus the annual interest rate.