Question

Do you think there are limitations to only considering risk and return when making financial decisions? Explain. (*Edit: this is for intro to finance, so just general financial decisions)

Answer 1

Risk is denoted by variance in the calculation of any investment cash flow and return is the expected benfit from an investment. Considering only Risk and return while choosing an investment will be a very narrow view viewpoint. Other factors to be considered while choosing an investment are:

1) Environmental damage - If an investment does a lot of environmental damage and causes pollution, it should not be considered even though it has a very high return

2) Social factor - Investment that promote large scale employment and development of the society should be considered as an opportunity even though it involves taking a high risk becuase it is for the betterment of the society

3) Technological factors - Investments that will lead to introduction of new technology for the betterment of the world should be considered as against those which are destructive. If the investment has lower return, still it should be considered over others.