06_Risk_&_Risk_Assessment - Risk&RiskAssessment...

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Click to edit Master subtitle style ACCY 560 Information in Value Creation June 23, 2011
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The concept of risk Risk has to do with something undesirable  happening – incurring a “loss” Whether we perceive something as a “gain” or a  “loss” depends upon our reference point Fundamental elements of risk include: The probability of the  loss occurring The magnitude of the  loss if it occurs
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Risk assessment exercise I will offer you a series of gamble-pairs For each gamble-pair, you have a choice between  Gamble A or Gamble B You should choose whichever gamble you prefer You should choose your TRUE preference
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First gamble pair GAMBLE A GAMBLE B Possible  Outcomes Outcome  Probability Win Possible  Outcomes Outcome  Probability Win 1 50% $100 1 100% $50 2 50% $0 2 0% $0 Which gamble do you prefer?  A, B or indifferent?
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Second gamble pair GAMBLE A
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06_Risk_&_Risk_Assessment - Risk&RiskAssessment...

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