BUS_FP3062_assessment8_att1.docx Estimating Risk and Return Capella University BUS- F

BUS_FP3062_assessment8_att1.docx    Estimating Risk and Return  Capella University  BUS- FP3062  Investment Returns and Risk Estimation  1. Expected return represents what investorsproject to get after predetermined time to compensate for risksthey take in an investment. It projects returns investors expect from stocks based on available market data(Eileen Rojas, n.d.).It measures possible losses or profits that could happen in an investment weighted by their probabilities. The main challenge is investors must consider strategies for the investment to act in a specified manner. The expected return does not account for market volatility, informing the risk characteristics to be assumed for the expected outcomes to achieve. For example, an investment with a high rate of the expected return may be riskier when the standard deviation is used to reveal the investment's historical volatility and appraise whether it is in line with the portfolio's goals. It's mainly based on historical market data and probabilities to project returns, which are not guaranteed.  2. When investors are making investments, they decide the magnitude of their investments and where to do it. However, the risk profile of an investment versus expected returns enables investors to diversify investments. Risk-free stock is the portion of the stock with no market risk. At the same time, the market portfolio has some market risk level (Arnold, Tom & Terry D. Nixon, 2006). This ratio is determined by the risk levels the investor is willing to tak