Investment projects involve varying degrees of risk. Investments in the form of bank deposits and government bonds normally involve no risk, while equity investments can involve a significant risk. Investments with higher risk will normally provide higher returns over time than investments with little or no risk: investors demand higher returns on risky investments than on investments with no risk. Risk can be measured by registering how much the price of a share fluctuates over time. An investor can, to some extent, control investment risks by diversifying. That is, he invests in a portfolio of securities in which prices fluctuate out of step with each other.
8.1 Risk, variance and standard deviation
Fluctuation ...
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