Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Define corporate risk
Corporate risk is the risk related to the company’s normal course of activities. The corporate refers to the methods which help in analysing and reducing the financial losses. The corporate risk includes the business risk and financial risk.
The financial risk is the risk which is related to the non-payment of the fixed financial charges. The financial risk arises when any business entity estimates that it is not able to pay its debt. The financial risk result in the loss of the money invested by the investors. The increase in the debts capital will increase the financial risk.
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