One of the fundamental concepts in finance involves understanding the relationship between risk and return. The greater the risk, the greater the required rate of return.

Based on your understanding of the concept of risk, complete the following statement:

Risk is the possibility that actual future cash flows will not be the same as the cash flows expected. This implies that risk represents the of returns.

Risk has an impact on outcomes. The likelihood that a particular outcome will occur in the future is called probability. When the possibilities of different outcomes are represented in a percentage form, the representation is referred to as a probability distribution. There are objective and subjective ways of determining probabilities.

Which of the following ways of determining protabilities is considered to be relatively more accurate than the other?

An objectively$-$determined probability is considered to be relatively more accurate.

A subjectively$-$determined probability is considered to be relatively more accurate.

Consider the following situation:

Freighter Inc, is a shipping company. The company issued preferred stock five years ago. Carlos bought several shares of the preferred stock and assesses the likelihood of expected payments based on Freighter's past performance.

The probability distribution created for the possible outcomes of this situation is an example of:

Objective probability