When choices are made (collectively or by an individual) to accept having less of one thing in order to get more of something else, the results are called trade-offs.
the concept that the higher the return o yield, the larger the risk; or vice versa. All financial decisions involve some sort of risk-return trade-off.
Definition: The choice labour makes between working more hours or taking more leisure when the rate of income tax changes.
Related glossary term: ...
Debt levels are chosen to balance interest tax shields against the costs of financial distress.
Agency costs ...
Trade-off: SRI funds could perform better than conventional ones as SRI funds comprise more carefully and actively selected firms. However, SRI funds could perform worse as the screening reduces the diversification potential which comes at a cost.
The trade-off for the balancing of risk and return in a diversified portfolio is that your overall return might be somewhat lower than you could get in an un-diversified portfolio.
Also, this trade-off and economic incentives (financial inducements, for example, the prospect of a healthy profit) more generally affect the hiring and investment decisions that entrepreneurs make when they establish and grow their businesses.
Is there a trade-off between risk and return?
If stocks have the highest return should you put 100% into stocks?
The balance an investor must decide on between the desire for low risk and high returns, ...
The tendency for potential risk to vary directly with potential return, so that the more risk involved, the greater the potential return, and vice versa.
Business / Finance / Risk-Return Trade-Off: The basic concept that higher expected returns accompany greater risk, and vice versa. MORE
Road Blocking ...
RISK-RETURN TRADE-OFF Risk and return are directly related in that the higher the risk the greater return and vice versa. Age and investment time frame should be considered when determining the levels of risk appropriate.
Trade-off - Giving up some of one thing to get some of another thing.
Traditional economy - A mode of economic organization which borrows economic decisions made at an earlier time or by an earlier generation ...
The Income/Leisure trade-off in the short run
If the preference for consumption is measured by the value of income obtained, rather than work hours, this diagram can be used to show a variety of interesting effects.
Target cash balance Optimal amount of cash for a firm to hold, considering the trade-off between the opportunity costs of holding too much cash and the trading costs of holding too little cash. Target company Often used in risk arbitrage.
It is conjectured that there is a simple trade-off between inflation and unemployment (high inflation and low unemployment, and low inflation and high unemployment). Named after A.W. Phillips.
Economists milton friedman and Edmund Phelps had pointed out that there should be no long-run trade-off between unemployment and inflation; or, in economists' jargon, that the long-run phillips curve should be vertical.
Key causes for these changes there are: (i) real wages rigidities (that have generated a trade-off between the stabilization effect of inflation and the output gap); (ii) the way monetary policy is conducted '...
The generic term for models designed to price assets, usually shares or baskets of them, in terms of the trade-off between risk and return t...(Read more)
See 'balance of payments'....(Read more)
Capital Shares ...
Project Management: Tools and Trade-offs (3rd ed.). Wiley. ISBN 978-0471413844.
Heerkens, Gary (2001). Project Management (The Briefcase Book Series). McGraw-Hill. ISBN 0-07-137952-5.
Kerzner, Harold (2003).
Die lyn wat gebruik word in die risiko-return trade-off die pryse van ruil vir doeltreffende portefeuljes afhangende van die risiko vry opbrengs en die vlak van risiko (standaard afwyking) vir 'n spesifieke portefeulje te illustreer.
Binary economics recognizes a natural synergy, as opposed to an unavoidable trade-off, between economic justice and efficiency within a global free marketplace.
However, economists such as MILTON FRIEDMAN argued that this supposed inflation-for-jobs trade-off was in fact a trap.
INTERMEDIATE RANGE: The positively-sloped segment of the Keynesian aggregate supply curve that reflects the trade-off between aggregate output and the price level.
This is the pricing model that describes the trade-off between risk and return for security. The capital asset pricing model is one of the most famous pricing models for equities.
An adage that, referring to the risk/return trade-off, says that the type of security an investor chooses depends on whether he or she wants to eat well or sleep well.
Determining Risk And The Risk Pyramid
Basic Investment Objectives ...
Principals underlying the analysis and evaluation of rational portfolio choices based on risk-return trade-offs and efficient diversification. Modified Accelerated Cost Recovery System (MACRS) ...
Trade-Off (business term)
Useful Life (business term)
Dividends-Received Deduction (business term)
Meals and Entertainment Expense (business term)
Tax Deductible (business term)
Mortgage Interest Deduction (finance term) ...
Optimal amount of cash for a firm to hold, considering the trade-off between the opportunity costs of holding too much cash and the trading costs of holding too little cash.
Target company ...
An approach to investment management which seeks to use statistical or numerical methods to create efficient portfolios, with the optimum risk/return trade-off.
Eat Well, Sleep Well - An adage that, referring to the risk/return trade-off, says that the type of security an investor chooses depends on whether he or she wants to eat well or sleep well.
Strategies for reducing downside risk involve trade-offs, so will either reduce the expected return (for example, hedging with options) or the upside risk (for example, selling a very volatile share to buy something more stable).
Theory that the firm's capital structure is determined by a trade-off of the value of tax shields against the costs of bankruptcy.
Self-financing of a supplier's operations.
The trade-off is "fun now, no return later" and many are satisfied with this. The one saving grace is that a well-constructed deck with ample seating room will often mature in value.
Target cash balance
Definition: [crh] Optimal amount of cash for a firm to hold, considering the trade-off between the opportuDefinition: nity costs of holding too much cash and the trading costs of holding too little cash.
Modern portfolio theory Investment strategy based on risk-return trade-offs and efficient diversification.
See also: Beta, Eat Well, Sleep Well, Long Position, Return, Risk, Risk Capital, Risk/Return Trade-off, Systematic risk, Unsystematic Risk
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Butterfly Spread ...
The PEG ratio is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (usually current-year or forward earnings), and the company's expected growth.
The process of dividing investments among different kinds of asset categories, such as stocks, bonds, real estate and cash, to optimize the risk/reward trade-off based on an individual's or institution's specific situation and goals.
The ratio of average return minus the average risk-free rate divided by the downside semi-standard deviation of the portfolio. It is a measure of the risk to return trade-off suitable when the returns are not normally distributed.
Modern portfolio theory: Principles underlying the analysis and evaluation of rational portfolio choices based on risk-return trade-offs and efficient Diversification.
The largest difference in container availability taking into account past peaks in net demandafter having removed the trend in container demand during the repositioning trade-off period.
Size or measure of anything in three dimensions.
Efficient frontier: Represents the highest level of satisfaction an investor can achieve given available set of portfolios. Those that provide the best attainment trade-off between risk (market volatility) and return.
a loan which does not require the borrower to document (ie: prove) his income, how much money he has saved up, or other information that would normally be required before a bank would give him a mortgage (ie:agree to loan him money). The trade-off ...
Risk/ reward trade-off
The compromise made between high- and low-risk investments. High-risk investments generally generate more earnings, while low-risk ones generate a lower rate of return.
Risk tolerance ...
The value of possible alternatives that a person gives up when making one choice instead of another; also known as a trade-off.
A computer model which, given information and forecasts for the various asset classes (return, risk, covariances), will give asset allocations which will be most efficient in terms of the trade-off between risk and return. (See also Optimisation).
Phillips curve A curve showing the relationship between unemployment and changes in wages or prices. It was long thought to reflect a trade-off between unemployment and inflation.
of one percent) on consumers, in the form of tiny increases in input costs. The result of this exceedingly small tax is that people at the lowest margins of our labor force live a life of slightly less grinding poverty. Seems a fair trade-off to me.
based on risk-return trade-offs and efficient diversification.
Modified duration The ratio of Macaulay duration to (1 + y), where y = the bond yield. Modified duration is ...
See also: Index, Transaction, Optimal, Expense, Opportunity cost