This is “Assessing Risk”, chapter 11 from the book Finance for Managers (v. 0.1). For details on it (including licensing), click here.

For more information on the source of this book, or why it is available for free, please see the project's home page. You can browse or download additional books there. You may also download a PDF copy of this book (2 MB) or just this chapter (203 KB), suitable for printing or most e-readers, or a .zip file containing this book's HTML files (for use in a web browser offline).

Has this book helped you? Consider passing it on:
Creative Commons supports free culture from music to education. Their licenses helped make this book available to you. helps people like you help teachers fund their classroom projects, from art supplies to books to calculators.

Chapter 11 Assessing Risk

Nothing ventured, nothing gained.

PLEASE NOTE: This book is currently in draft form; material is not final.

Life is full of uncertainty. It would be wonderful if we could accurately predict tomorrow’s weather (or the questions on next week’s exam!). Thankfully, we can take measures to protect ourselves from uncertainty, such as carrying an umbrella (or studying), thus mitigating the risk involved.

In this chapter, we will study how risk can be accounted for in financial decision making. We will discuss some measures of risk and how we can control our exposure to it. The study of finance is, at its core, about the tradeoff between accepting a degree of risk for a potentially higher return.