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1 Project Risk Assessment and Return Lesson 7 HA 343 Tabitha Knowles St. Joseph’s College of Maine Instructor: Sheri Brinson
Project Risk Assessment and Return 1. When considering stand-alone risk, the return distribution of a less risky investment is more peaked (“tighter”) than that of a riskier investment. What shape would the return distribution have for an investment with (a) completely certain returns and (b) completely uncertain returns? What are the two types of portfolio risk? How is each type defined? How is each type measured? When a stand-alone risk is considered to be tight, it will have a higher return to attract the investor. When an investment has a certain return, it tends to be a low risk as you can expect a vertical line because there are no variables that could hinder the return. With an uncertain return, you’ll see a horizontal line because the variability can change, making it the higher risk. “the ultimate goal in project risk analysis is to ensure that the cost of capital used as the discount rate in a project’s ROI analysis properly reflects the riskiness of that project (Gapenski, 2016).” Two types of portfolio risk are corporate risk and market risk. With market risk,

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