IZZY: Risk is best thought of as the potential for variability in the investment's outcomes. This means that if an investment has the potential to

provide only one possible outcome or return, then it is

asset should be considered

$.$ while if there is more than one possible return or result, then the

the

$..$ This is why securities sold by the U$.$S$.$ Treasury have historically been considered to be

securities in the world; because except in the event of the failure of the U$.$S$.$ government, any investor holding a

Treasury security would receive the security$\text{'}$s face value upon its maturity.

Most investors have an expected outcome associated with an investment, and risk refers to the potential for receiving an outcome or return

that is greater or less than his or her expected return. It is not surprising that investors

receiving investment returns that

exceed their expected return, but they tend to respond differently if the investment can generate a lower return. This potential

for

outcome is the risk on which most investors focus.

In general, the majority of investors, or those buying and selling securities$,$ are assumed to be

$.$ This does not mean that

they won't purchase or sell risky securities or projects, it simply means that they

be compensated with a risk premium

or additional return for taking on projects or securities exhibiting additional risk.

SAMANTHA: So investors require a given amount of return for investing in a risk$-$free investment, and then require an additional risk premium if

they invest in projects or securities that exhibit risk? Is that correct?

IZZY: That's absolutely correct! And the magnitude of the risk premium will

as the amount of risk exhibited by the investment

increases. So the riskiest investments require the

risk premiums, and investments exhibiting relatively little risk

require

risk premiums.

SAMANTHA: OK$,$ that makes sense, but how do you know how risky an investment is$?$

IZZY: It depends on how many investments you hold. If you hold only one investment$-$not just one type, such as one house, one car, one

savings account, but one of all possible investments$-$then you can measure the riskiness of that investment by calculating

the

of the investment's possible returns.

If you're holding a portfolio of assets, on the other hand, then the risk that is of greater interest is the

riskiness, and

how the addition of a new security or asset would affect the overall riskiness of the portfolio. This brings us to a related concept: the

advantages and disadvantages of