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Introduction

Introduction. Chapter I. Certainty and Uncertainty. Certainty is lack of doubt. Uncertainty arises when future outcomes cannot be known with certainty. Uncertainty is a subjective concept so it cannot be measured directly. Risk. Risk is potential variation in outcomes.

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Introduction

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  1. Introduction Chapter I

  2. Certainty and Uncertainty • Certainty is lack of doubt. • Uncertainty arises when future outcomes cannot be known with certainty. • Uncertainty is a subjective concept so it cannot be measured directly.

  3. Risk • Risk is potential variation in outcomes. • Risk can be positive (up) or negative (down) or zero (stable) • Risk is an objective concept, meaning it is measurable.

  4. Jenis Risiko • Pure Risk • Risk that can result negatively. • For example: risk of a car accident. • Speculative Risk • Risk which can result either negatively or positively. • For example: risk of investing in stocks.

  5. Sifat Risiko • Systematic Risk (Non-Diversifiable Risk) • Risk which cannot be diversified. • For example: market risk. • Unsystematic Risk (Diversifiable Risk) • Risk which can be diversified. • For example: asset risk.

  6. Risk vs. Return for Investors • High risk – high return. • Actual trade-off between risk and expected return. • Expected value = mean value. • Expected return is weighted average of possible returns.

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