Section 1 By: Ms. Eman Elfar Financial management 2 Section 1 By: Ms. Eman Elfar

The meaning of Risk and return Risk : is the chance of financial loss or (variability of returns associated with a given asset). Return: the total gain or loss experienced on an investment over a given period of time.

Types of risk Risk Preferences behavior : The risk-averse: financial manager requires an increase in return for a given increase in risk. The risk-indifferent: manager requires no change in return for an increase in risk. The risk-seeking: manager accepts a decrease in return for a given increase in risk.

Financial Risk: refers to the chance a business's cash flows are not enough to pay creditors and fulfill other financial responsibilities. Taking on higher levels of debt or financial liability therefore increases a business's level of financial risk. Business Risk: refers to the chance a business's cash flows are not enough to cover its operating expenses like cost of goods sold, rent and wages. Unlike financial risk.

There are tow types of risk: Systematic risk :is the risk that result from the influence of external factors on an organization. The organization cannot control these factors. It is a macro in nature and affect a large number of organizations Unsystematic risk is the risk that result from the influence of internal factors prevailing within an organization. The organization can exercise control over these factors. It is a micro in nature as it affects only a particular organization so the organization usually try to reduce the effect of this risk.

) r(x) = 𝟏𝟓𝟎𝟎+𝟐𝟏𝟎𝟎𝟎−𝟐𝟎𝟎𝟎𝟎 𝟐𝟎𝟎𝟎𝟎 = 0.08= 8% r( Y) = 𝟔𝟖𝟎𝟎+𝟓𝟓𝟎𝟎𝟎−𝟓𝟓𝟎𝟎𝟎 𝟓𝟓𝟎𝟎𝟎 = 0.12= 12%