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What impact does an increase in the margin of safety have on risk?

Question:

What impact does an increase in the margin of safety have on risk?

The margin of Safety:

The margin of safety is the extra or additional sales where the sales exceed the break-even sales. In the case of the investment margin of safety is when the market price of the investment is less than the money value the investment holds for the investor.

Answer and Explanation:

The margin of safety measures the net received about the break-even point. If the margin of safety increases there will be a fall in the risk factor associated with that activity. That is high margin of safety assures that there are more returns from the sale. The difference that is seen between the actual and intrinsic value is more then it means that the risk associated with it will be less. With the fall in the margin of safety, there will be a rise in the risk factor associated.


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Investment Risks: Definition & Types

from Finance 305: Risk Management

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