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What are the ways of incorporating risk into the investment appraisal process? I don’t have a study text but I think it refers to sensitivity analysis, Expected values analysis & Risk-adjusted discount rate but aren’t these are to deal with uncertainty but not risk in chapter 10 of notes?
Could you explain them briefly, please!?
Although strictly speaking uncertainty and risk are not the same (risk is where you have probabilities for the different outcomes, whereas with uncertainty you do not), in exam written questions the examiner treats them both as being the same (unless he specifically asks you to state the difference between risk and uncertainty, which from memory has only been asked once in the last twenty years 🙂 )
The approaches that you need to be aware of for the exam are all explained in the lectures working through that chapter in the lecture notes that you refer to.
And simulation as well another way of dealing to quantify risk.am I right john?
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