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Financial & Managerial Accounting
Found in: Page 29
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Define return and risk. Discuss the trade-off between them.

Risk refers to the uncertainty of return, and return is the net income of the business. When risk increases, return also increases and vice-versa.

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Step by Step Solution

Step 1: Definition of returns and risk

Returns are often linked to the then net income of the business.

Risk is defined as the uncertainty about the returns of the company.

Step 2: Trade-off between risk and return

There will always be a trade-off between risk and returns which means—when the company increases the risk then the returns will reduce when the risk increases then returns will also increase.

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