What are the linkages among financial decisions, return, risk and stock value? Why are these linkages important? How does the financial manager incorporate these as s/he manages the assets and liabilities of the firm? Be sure to include examples to provide specificity for your answers.

All investors are concerned about two things: the rate of interest on their assets and the risk associated with those holdings. While shareholders would like a low-risk, large investments, the general principle is that financial burden and financial return are traded off in a more or less direct manner.

Investing with No Risk;

A risk-free transaction is one with a predetermined rate of return, no volatility in value, and no danger of default. Although there is no such entity as an uncertainty investment, it is a valuable tool for determining the relationship between financial risk and investment value.

Premium for Risk;

Once risk is factored into the equation, the computation of financial return alters. Assume you have two investments to pick from throughout a five-year investing term. Investment One is risk-free, but Investment B has a 50% probability of going bankrupt in five years.

Volatility;

Shareholders in the bond market are generally confronted with two situations: either they will be reimbursed at the stated interest rate, not any more and no less, or they will lose entire whole investment.

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Explanation:

They're never secure in making a financial decision and thus rely in large measure on the relationship between return, risk and stock value. A return defines the gain assured on assets for which the risk of default or potential loss is borne. Consequently, the risk and returns are negative. If the risk investment is high, there will also be higher returns, as the buyer needs to be balanced against bearing the higher risk in the form of dividends.On the other hand, if you are looking for a low-risk investment, the income is less. The stock and returns on the other side contribute favourably. The market value of the stock decreases as returns rise. Although no clear link is established, it appears that investments that have the highest return potential are often the most risky. Such partnerships are of particular significance to an investor because he will have two main concerns, one being the rate of return and the other being the risk. The returns of stocks are practically limitless as they can become worthless or have a significantly higher valuation over time than the initial buying price. Acquisition stocks are also more volatile than shares, because in comparison to debt the yield on stocks is not decided. And therefore it would be right to say that such partnerships are part of the investment method.

Any reactive financial manager or investor prefers without the guarantee of a higher profit to escape higher risk. In handling the company's assets and obligations a finance officer takes these partnerships into account on a regular basis. It can be decided on the basis of this correlation whether or not it is worth risking an investment that could be lucrative.

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