Risk is the uncertainty about which outcome will occur and about the possibility of loss when the unfavorable ones do. Reward means the potential return that can be earned from an investment.

You purchased a stock for $67 and sold it 3 years later for $91. During these 3 years, you received $5 of dividends in total. What is the Total Return and the IRR on this investment?

Five years ago, John purchased a business for $3 million and sold it today for $10 million. Based on this, John has earned an IRR of 27%. If John had accurately forecasted $10 million in Future Value and had determined at the time of investment that the maximum price he’s willing to pay for the business was $3 million, the discount rate he used was:

Ideally, we want the IRR we earn on a stock to be greater than its Cost of Equity.