ACCA FM Syllabus D. Investment Appraisal - Risk & Uncertainty basics - Notes ^{1 / 5}

This is present when future events occur with measurable probability

This is present when the likelihood of future events is incalculable

Risk & Uncertainty

• Risk refers to the situation where probabilities can be assigned to a range of expected outcomes arising from an investment project and the likelihood of each outcome occurring can therefore be quantified

• Uncertainty refers to the situation where probabilities cannot be assigned to expected outcomes. Investment project risk therefore increases with increasing variability of returns, while uncertainty increases with increasing project life