Diversified Investor
Beta Thought To Be A More Relevant Measure
For a diversified investor, beta is known as the more relevant measure of risk than
standard deviation because the beta is the sure thing and proved as best in investing, however, its focus on the market risk and can eliminate the risks and help the investors. There is effectiveness of using the beta, the knowledgeable investor always use beta as it has the regard to portfolio risk and it could better focus on risks measured by the standard deviation. There are the understanding and impact of market risk, beta not only measures of market risk but it is also the good tool for the investors. Intelligent investors can measure the sensitivity through the beta and there can be the measure of co-movement. However, beta is known as risk measurement tool and it provides the higher correlation of the security in the market.
Relationship Between Risk And Return
There is the relationship between risk and return, however, the investors focus more on the risk and return, and it is the dream of every investor to focus on the high return at low risk. Moreover, the investors need to have the relevant information about the market, if they need to manage the risk, return, and investment. Therefore, the marketers can increase or decrease risks, on the return of investment, there are different types of risk and return as the high risk – high return can give the more reward to the investors by investing good and low risk – low return will decrease the investment from the investor and decrease the risk of losses. However, a negative relationship could also be seen on the part of investors as the high-risk low-return, this will increases the investment but in this way, a return will decrease, a low-risk high return will be opportunities to invest low amount and get the high return from the market.
Consequences Of Using The Discount Rate
There are the consequences of using discount rate as the higher or lower return can be confused components because the discounted cash flow analysis is not the same all the time regarding the discount rates, there could be the sum of all future cash flows through analyzing the present using a rate of return. Thus, the discounted back or discount rate, which is invested by the investors today, example if the investor invests $100,000 today then it may not grow in the 5 years. However, discount rate focuses on the initial investment and there are the factors of discount rate sensitivity, there could also be the sensitivity of net present value.