06_Risk_&amp;_Risk_Assessment

# 06_Risk_&amp;_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
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?
Second gamble pair GAMBLE A

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## This note was uploaded on 07/30/2011 for the course ACCT 560 taught by Professor Chandler during the Summer '11 term at University of Illinois, Urbana Champaign.

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06_Risk_&amp;_Risk_Assessment - Risk&RiskAssessment...

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