In maximizing profits there is always a trade-off with risk. The greater the risk we must incur, the greater the anticipated profit or return on the money we demand. Certainly, given two equally risky projects that provide similar health benefits to the community, we would always choose to undertake one with a greater anticipated return. More often than not, however, our situation while studying how to become and accountant revolves around whether the return on a specific investment is great enough to justify the risk involved. It is theoretical in school, but once you get into health care accounting, this is an important thing to consider.
Consider keeping funds in a passbook account insured by the Federal Deposit Insurance Corporation. You might earn a profit or return of about 2%. The return is low, but so is the risk. Alternatively, you could put your money in a non-bank money market fund where the return might be considerably higher. However, the FDIC would not insure the investment and the risk is clearly greater. Or you could also choose to put your money into the stock market. In general do we expect our stocks to do better or worse than a money market fund. If the expected return were not higher, would anyone invest in the stock market?
That does not mean everyone will choose the same level of risk. Some people feel more comfortable with their money in the bank, while others choose the most speculative stocks. Some health organizations are more likely to accept a high level of risk then others.
