Check My Work Risk and Rates of Return: Stand-Alone Risk Stand-alone risk is the risk an Investor would face if he or she held only one asset . No investment should be undertaken unless its expected rate! of return is high enough to compensate for its perceived risk . The expected rate of return is the return expected to be realized from an investment; it is calculated as the weighted average of the probability distribution of possible results as shown below: Expected rate of return = f = Pin+Bara+ ... + PNT The tighter an asset's probability distribution, the lower its risk. Two useful measures of stand-alone risk are standard deviation and coefficient of variation Standard deviation is a statistical measure of the variability of a set of observations as shown below: Standard deviation = 0 r. 4)P If you have a sample of actual historical data, then the standard deviation calculation would be changed as follows: Estimated = The coefficient of variation is a better measure of stand-alone risk than standard deviation because it is a standardized measure of risk per unit it calculated as the standard deviation divided by the expected return. The coefficient of variation shows the risk per unit of return to it provides more meaningful risk measure when the expected returns on two alternatives are not identical Hide Feedback Correct Quantitative Problem: You are given the following probability distribution for CHC Enterprises Quantitative Problem: You are given the following probability distribution for CHC Enterprises: State of Economy Probability Rate of return 18% Strong Normal Weak 0.25 0.5 0.25 8% -6% What is the stock's expected return? Round your answer to 2 decimal places. Do not round intermediate calculations. % Hide Feedback Incorrect Check My Work Feedback Review the equation for calculating expected return. Don't forget the negative sign for the return under the weak state of economy. Check your math and add up each product to calculate the expected return. What is the stock's standard deviation? Round your answer to two decimal places. Do not round Intermediate calculations. X3% Hide Feedback Incorrect Check My Work Feedback Review the equation for calculating standard deviation. Don't forget the negative sign for the return under the weak state of economy, Check your math and be careful about the order of mathematical operations What is the stock's coefficient of variation Round your answer to two decimal places. Do not round Intermediate calculations