Understanding risk and probability

1) different from or same as

2) an objective or a subjective

1. Understanding risk and probability 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: If there is no risk involved in an investment, the actual returns you will receive in the future are likely to be the expected 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 distrbution. There are objective and subjective ways of determining probabilities If a probability is determined using past occurrences of similar outcomes, it will be referred to as probability, Consider the following situation: Paul wants to bet on his favorite football team and determines that the team has an 80% probability of victory, The probability distribution created for the possible outcomes of this situation is an example of: Subjective probability Objective probability