One Common Mistake Made Early in the Risk Identification Process

question 44

Multiple Choice

One common mistake made early in the risk identification process is to

• A) not consider all possibilities.
• B) encourage participants be over optimistic.
• C) support participants being over pessimistic.
• D) focus on consequences and not on the events that could produce consequences.
• E) give too much attention to past events.

---

Definitions:

Market Risk Premium

The extra return expected by investors from holding a risky market portfolio instead of risk-free assets.

Security Market Line

A graphical representation used in financial markets to illustrate the relationship between risk and return for individual securities.

Reward-To-Risk Ratio

A measure used in finance to compare the expected returns of an investment to the amount of risk undertaken to capture these returns.

Risk-Free Rate

The theoretical rate of return of an investment with zero risk of financial loss, often represented by the yield of government bonds from stable governments.