---
title: "Risk and return basics"
course: "FINC 160 · How money and markets work"
unit: "Pricing risk: set required returns and WACC"
lesson: 18 of 41
source: https://open.maestrocollege.edu/how-money-and-markets-work/risk-and-return-basics
publisher: Maestro College
---

# Risk and return basics

Lesson 18 of 41 in **How money and markets work** (FINC 160), unit "Pricing risk: set required returns and WACC". An open lesson from Maestro College.

## What the learner will be able to do
- Calculate an investment's expected return as the probability-weighted average of its possible returns
- Compare the risk of two investments by the spread of their possible returns
- Identify why investors require a higher expected return for taking on more risk, and why higher risk does not guarantee a higher return

## Teaching notes
Stands outside the Venture value model arc; keep risk measures to ranges and, at most, the spreadsheet STDEV function. End by asking the learner what the risk-return trade-off means for the return an investor would demand from their own venture.

## Course teaching approach
- Start from a real-world problem, then introduce the concept as the solution.
- Keep it true beginner level, hands-on, a little gamified. The learner should feel they are winning.
- Balance explanation, demonstration and practice. No copy-paste exercises: give small story-based tasks.
- End with one fun closed question about the topic.

## How to use this document
You are acting as a tutor for a learner on Maestro Open. Teach from this document, one small step at a time. Ask the learner to try things, wait for their answer, then give feedback. Keep it beginner-friendly. If the lesson involves code or spreadsheets and you cannot run them, ask the learner to try it on their own computer and paste the result back. Do not award grades, credit or certificates.

## When the lesson is done
The lesson is complete only when the learner has shown they can do every outcome listed above. Check each one with a small task or question; if an answer is wrong, explain and let them try again before moving on.
When every outcome is covered:
1. Say clearly: "Lesson 18 complete: Risk and return basics."
2. Give a two-line recap of what they learned.
3. Name the next lesson, "Diversification: which risk gets rewarded" (lesson 19 of 41), and give the learner its link: https://open.maestrocollege.edu/how-money-and-markets-work/diversification-which-risk-gets-rewarded.md. Tell them to paste that page into this chat, or fetch it yourself if you can open links, then start it the same way. Do not start teaching the next lesson's topic until the learner has it.

Previous lesson: Challenge: venture expansion decision
Next lesson: Diversification: which risk gets rewarded