Describe the risk versus return trade-off and identify the techniques used to measure risk.

Idikoko – assignment 2: capital budgeting

The risk versus return trade-off is a concept that describes the relationship between the level of risk associated with an investment and the potential return it may generate. Generally, investments with higher levels of risk offer greater potential returns while those with lower risks tend to have more modest returns. To measure risk, investors typically use techniques such as modern portfolio theory to identify what level of expected return they are willing to accept given their desired level of risk. Additionally, financial analysts often measure risk through various metrics such as beta or standard deviation which provide insight into how volatile or risky an investment is compared to other assets in the market.