Page 273 - Microsoft Word - 00 ACCA F9 IWB prelims 2017.docx

Sources of finance

Risk versus return

The relationship between risk and return is a key topic for this syllabus.

Risk is the variability of potential returns.

Investment risk arises because returns are variable and uncertain.

An increase in the risk taken on by an investor generally requires
an increase in returns provided by the investment.

Each time an investor demands a higher return on the finance they
have provided, this is reflected in a higher cost of that finance to the
company.

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