Appendix B: More Real World Examples
Risk/Reward Ratio Let’s consider the following example to understand RRR. Investor A wants to create a balanced portfolio using the following input data: Asset Value 10000 Accepted Risk 0.1 Time Period Y 1 Predict Growth 0.2 This is about investing $10000. He is willing to accept 10% of the risk with the expected 20% of the return on a short-term investment of 1Y. He shortlisted the two stocks, AAPL and MSFT, at the current prices $157 (AAPL) and $330 (MSFT) per share. He analyzed both stock trends using historical market data. According to his stock BI analysis, the predicted AAPL share price range is $100-200, whereas the predicted MSFT share price range is $300-400 in a period of 12 months: Stock Current Price Stop Loss Target AAPL 157 100 200 MSFT 330 300 400