ABSTRACT
This chapter discusses the reader understand the concept of risk and return by understanding the different risk preferences and how risk applies to the airline industry. It explains the capital asset pricing model (CAPM) and discusses to more fully understand the concept of risk and return, the question as to whether the airline industry is a risky investment. The chapter highlights the dichotomy between risk and return and how it impacts the financial environment. The return can be stated in dollar terms as the cash received from the investment or expressed in percentage terms. However, the return on a financial investment is a little less definitive, as the total dollar return is comprised of two components: dividend income and capital gains. The expected return on a portfolio is the weighted average of the expected return on the securities included in that portfolio, with the weight of a security in a portfolio simply being the percentage of assets invested in that security.
