Commerce Assignment (1 Viewer)

[MarvelE]

Hey guys, I have a commerce assignment due next week, and Ive done all of it except for one question: Explain the relationship between risk and the interest rate offered. Im not sure if I just missed out on the period we learned this, or our teacher hasn't taught us the material but I don't understand the question at all. Any help would be appreciated!

 

[MarvelE]

And also the question says "with the interest rate offered" thats where im getting confused since they dont actually provide us with an interest rate!

I also checked the textbook and this is all I could find on interest rates and risks: "When you invest, you want to achieve the highest return for the most acceptable risk.", and then this: "Alternatively, you might decide to sell some shares because a term deposit offers a better return for much less risk. When interest rates are falling, you may decide on the opposite course of action."

Feynman deleted his post :/

 

[BLIT2014]

The higher the risk, the greater the Interest rate.

As you are more likely to lose money, for the 'risk' of investment you would want to get a higher reward to reward you for the possibility of losing your money.

This is probably the easiest explanation site to visit http://www.investopedia.com/terms/r/riskrewardratio.asp


If that doesn't provided enough information
http://finance.yahoo.com/education/bond/article/101196/Risk_vs_Reward_How_Bonds_Behave
http://stocks.about.com/od/riskreward/a/Understandrisk.htm
http://www.investopedia.com/articles/stocks/11/calculating-risk-reward.asp


Or search 'Risk Vs Reward' into a search engine

 

[BLIT2014]

And also the question says "with the interest rate offered" thats where im getting confused since they dont actually provide us with an interest rate!

I also checked the textbook and this is all I could find on interest rates and risks: "When you invest, you want to achieve the highest return for the most acceptable risk.", and then this: "Alternatively, you might decide to sell some shares because a term deposit offers a better return for much less risk. When interest rates are falling, you may decide on the opposite course of action."

Feynman deleted his post :/

Its a hypothetical interest rate, you can choose one an interest rate to demonstrate the theory.

 

[MarvelE]

Oh ok thanks!