ABSTRACT
In this chapter, both risks and returns are defined and measured. In this chapter, you will learn the way an analyst looks at risk, the different metrics used to measure different types of risk and how those risks relate to the returns earned by the asset in question. The risks and returns for Amazon and IBM are compared over a five-year period, giving students a realistic understanding of how to understand risk and its impact on returns. The Capital Asset Pricing Model (CAPM) is introduced to explain which risks will earn a return (and which will not), and how those risks are used to determine the appropriate return. One of the fundamental principles deals with the relationship between returns and risks.
