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Welcome to Unit 5Risk, Return, and the CAPM
In this unit, we explore the relationship between risk and return. Every investment decision carries a certain amount of risk. Financial managers must calculate whether assuming the risk of an investment is worth taking (if things go badly) versus the reward it could generate (if things go well). Calculating this "riskiness" is part of making sound financial and business decisions. For example, suppose you are the financial manager for a large corporation, and your boss asks you to choose between two investment proposals. Investment A is a textile plant in a remote part of a developing country. This plant can generate $50 million in yearly profits. Investment B is a textile plant located in the United States, near a small Virginia town with a rich textile industry tradition. However, investment B's profit capacity is only $30 million due to higher start-up and operating costs. Which option do you choose? While investment A can yield significantly higher profits, there is much risk to consider. Investment B has a much lower profit capacity, but the risk is also lower. This unit examines the relationship between risk and return. We explore how to compute the level of risk by calculating expected values and the standard deviation. We also discuss handling risk in an investment portfolio and measuring a stock investment's expected performance as it is affected by the overall performance of a stock market. You can start by reviewing the unit learning outcomes and then reviewing the unit resources.
To access the AI Summary of this page or to download the PDF transcript for the video, please click on the icons above.
AI Summary
Video Transcript
Source and License: This work is licensed by Saylor Academy under a Creative Commons Attribution-NonCommercial-Sharealike 4.0 International License (CC BY-NC-SA 4.0). This content was created using Genially and Synthesia. AI-generated avatars and voices in this video were created using Synthesia and remain subject to Synthesia’s Terms of Service; these elements are not covered by the Creative Commons license. Synthesia trademarks and services remain the property of Synthesia. All Genially proprietary elements such as templates, themes, built-in assets, stock media, and other “Genially Content” remain subject to Genially’s Terms of Service and are not covered by this Creative Commons license. These elements must remain embedded in the course and cannot be reused or redistributed independently.
Source and License: This work is licensed by Saylor Academy under a Creative Commons Attribution-NonCommercial-Sharealike 4.0 International License (CC BY-NC-SA 4.0). This content was created using Genially and Synthesia. AI-generated avatars and voices in this video were created using Synthesia and remain subject to Synthesia’s Terms of Service; these elements are not covered by the Creative Commons license. Synthesia trademarks and services remain the property of Synthesia. All Genially proprietary elements such as templates, themes, built-in assets, stock media, and other “Genially Content” remain subject to Genially’s Terms of Service and are not covered by this Creative Commons license. These elements must remain embedded in the course and cannot be reused or redistributed independently.
AI Summary
This unit explores the relationship between risk and return in financial decision-making. You will learn how financial managers evaluate potential investments and determine whether the expected reward justifies the risk. Here are some key takeaways:
- Understand the trade-off between risk and return when evaluating investment opportunities.
- Examine how expected value and standard deviation are used to measure investment risk.
- Explore how diversification and portfolio management help manage investment risk.
- Recognize how market performance influences the expected performance of individual investments.
You can start by reviewing the unit learning outcomes and the unit resources.
Unit 5 Introduction Video
Saylor Academy
Created on March 11, 2026
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Transcript
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Experiencing playback issues or need translation options?
Welcome to Unit 5Risk, Return, and the CAPM
In this unit, we explore the relationship between risk and return. Every investment decision carries a certain amount of risk. Financial managers must calculate whether assuming the risk of an investment is worth taking (if things go badly) versus the reward it could generate (if things go well). Calculating this "riskiness" is part of making sound financial and business decisions. For example, suppose you are the financial manager for a large corporation, and your boss asks you to choose between two investment proposals. Investment A is a textile plant in a remote part of a developing country. This plant can generate $50 million in yearly profits. Investment B is a textile plant located in the United States, near a small Virginia town with a rich textile industry tradition. However, investment B's profit capacity is only $30 million due to higher start-up and operating costs. Which option do you choose? While investment A can yield significantly higher profits, there is much risk to consider. Investment B has a much lower profit capacity, but the risk is also lower. This unit examines the relationship between risk and return. We explore how to compute the level of risk by calculating expected values and the standard deviation. We also discuss handling risk in an investment portfolio and measuring a stock investment's expected performance as it is affected by the overall performance of a stock market. You can start by reviewing the unit learning outcomes and then reviewing the unit resources.
To access the AI Summary of this page or to download the PDF transcript for the video, please click on the icons above.
AI Summary
Video Transcript
Source and License: This work is licensed by Saylor Academy under a Creative Commons Attribution-NonCommercial-Sharealike 4.0 International License (CC BY-NC-SA 4.0). This content was created using Genially and Synthesia. AI-generated avatars and voices in this video were created using Synthesia and remain subject to Synthesia’s Terms of Service; these elements are not covered by the Creative Commons license. Synthesia trademarks and services remain the property of Synthesia. All Genially proprietary elements such as templates, themes, built-in assets, stock media, and other “Genially Content” remain subject to Genially’s Terms of Service and are not covered by this Creative Commons license. These elements must remain embedded in the course and cannot be reused or redistributed independently.
Source and License: This work is licensed by Saylor Academy under a Creative Commons Attribution-NonCommercial-Sharealike 4.0 International License (CC BY-NC-SA 4.0). This content was created using Genially and Synthesia. AI-generated avatars and voices in this video were created using Synthesia and remain subject to Synthesia’s Terms of Service; these elements are not covered by the Creative Commons license. Synthesia trademarks and services remain the property of Synthesia. All Genially proprietary elements such as templates, themes, built-in assets, stock media, and other “Genially Content” remain subject to Genially’s Terms of Service and are not covered by this Creative Commons license. These elements must remain embedded in the course and cannot be reused or redistributed independently.
AI Summary
This unit explores the relationship between risk and return in financial decision-making. You will learn how financial managers evaluate potential investments and determine whether the expected reward justifies the risk. Here are some key takeaways:
- Understand the trade-off between risk and return when evaluating investment opportunities.
- Examine how expected value and standard deviation are used to measure investment risk.
- Explore how diversification and portfolio management help manage investment risk.
- Recognize how market performance influences the expected performance of individual investments.
You can start by reviewing the unit learning outcomes and the unit resources.