Assignment: Investment Returns and Risk Premiums <\/p>\n
Risk comes from not knowing what you are doing.
\u2014Warren Buffett <\/p>\n
How do you feel about the following statement: \u201cAvoiding risks is the biggest risk of all\u201d? That statement may seem contradictory at first, but it makes more sense if you apply the concept to various situations in life and business. For example, many people pursue a college degree because they feel it will increase their job prospects and earning potential. This can turn out to be true but is not a guarantee. Others may find this path too risky and prefer to enter the job market right away. Although the first group of people take the risk of their college degree paying off in the long run, the second group are also taking the risk of limiting their potential for the future. Similarly, the nature of entrepreneurship is built upon the risk of investing time and money into something that could potentially fail. Even established businesses could become outdated or be outperformed if they stop taking certain risks. Just as the concept of risk can apply in a general sense, it also applies to investments that individuals and businesses make. Calculated investment risks are not always guaranteed to pay off, but a zero-risk approach may not be as safe as it sounds either.
In this Assignment, you will address questions related to returns and risk premiums.
To prepare for this Assignment:\u00a0
Review this week\u2019s Learning Resources.
Refer to the Academic Writing Expectations for 2000\/3000-Level Courses as you compose your Assignment.
By Day 7
Submit\u00a0your responses to the following prompts.
Explain the differences between the arithmetic return and the geometric return. Include in your explanation what factor determines the difference between arithmetic returns and geometric (compounded) returns. (75\u2013150 words, or 1\u20132 paragraphs)
If you own a stock with volatile returns over a 2-year period, will the average return be higher or lower than the geometric return? Explain why. (75\u2013150 words, or 1\u20132 paragraphs)
Why is it more convenient to display your investment returns in percentage terms rather than dollar terms? (75\u2013150 words, or 1\u20132 paragraphs)
Would a common stock or a corporate bond demand a higher risk premium? Explain why. (75\u2013150 words, or 1\u20132 paragraphs)
What are the differences between a bond risk premium and an equity risk premium? (75\u2013150 words, or 1\u20132 paragraphs)
Explain whether it is possible to earn excess returns without taking on additional risk. (75\u2013150 words, or 1\u20132 paragraphs)
Note:\u00a0For each prompt, be sure to reference at least one scholarly source to support your answer. <\/p>\n
Required Resources
Investment Returns
Using these resources, you will examine investment returns and will delve into the difference between arithmetic vs. geometric averages. When calculating investment returns, the geometric average will be more important than the arithmetic average. You will examine how all of these concepts relate to risk.
Drake, P., Cleary, S.,<\/p>\n","protected":false},"excerpt":{"rendered":"
Assignment: Investment Returns and Risk Premiums Risk comes from not knowing what you are doing. \u2014Warren Buffett How do you feel about the following statement: \u201cAvoiding risks is the biggest risk of all\u201d? That statement may seem contradictory at first, but it makes more sense if you apply the concept to various situations in life […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[13],"class_list":["post-11543","post","type-post","status-publish","format-standard","hentry","category-research-paper-writing","tag-management"],"_links":{"self":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/11543","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/comments?post=11543"}],"version-history":[{"count":0,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/11543\/revisions"}],"wp:attachment":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/media?parent=11543"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/categories?post=11543"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/tags?post=11543"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}