Risk and Return: Stand-Alone Risk Stand-alone risk is the risk an investor would face if he or she held only -Select- . No investment should be undertaken unless its expected rate of return is high enough to compensate for its perceived -Select- . The expected rate of return is the return expected to be realized from an investment; it is calculated as the -Select- of the probability distribution of possible results as shown below: Expected rate of return=f=piri+para+ ... + Pnn = Piri -pori i=1 The-Select- 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 == P:( Ti - A) i=1 If you have a sample of actual historical data, then the standard deviation calculation would be changed as follows: T t=1 (Ft - FAvg) Estimated S= T-1 divided by the expected 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 is calculated as the -Select- return. The coefficient of variation shows the risk per unit of return, so it provides a more meaningful risk measure when the expected returns on two alternatives are not [ -Select- Quantitative Problem: You are given the following probability distribution for CHC Enterprises: State of Economy Probability Rate of return Strong 0.2 21% Normal 0.5 10 Weak 0.3 -4 What is the stock's expected return? Round your answer to 2 decimal places. Do not round intermediate calculations. % What is the stock's standard deviation? Round your answer to two decimal places. Do not round intermediate calculations. % What is the stock's coefficient of variation? Round your answer to two decimal places. Do not round intermediate calculations. Risk and Return: Stand-Alone Risk Stand-alone risk is the risk an investor would face if he or she held only -Select- . No investment should be undertaken unless its expected rate of return is high enough to compensate for its perceived -Select- . The expected rate of return is the return expected to be realized from an investment; it is calculated as the -Select- of the probability distribution of possible results as shown below: Expected rate of return=f=piri+para+ ... + Pnn = Piri -pori i=1 The-Select- 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 == P:( Ti - A) i=1 If you have a sample of actual historical data, then the standard deviation calculation would be changed as follows: T t=1 (Ft - FAvg) Estimated S= T-1 divided by the expected 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 is calculated as the -Select- return. The coefficient of variation shows the risk per unit of return, so it provides a more meaningful risk measure when the expected returns on two alternatives are not [ -Select- Quantitative Problem: You are given the following probability distribution for CHC Enterprises: State of Economy Probability Rate of return Strong 0.2 21% Normal 0.5 10 Weak 0.3 -4 What is the stock's expected return? Round your answer to 2 decimal places. Do not round intermediate calculations. % What is the stock's standard deviation? Round your answer to two decimal places. Do not round intermediate calculations. % What is the stock's coefficient of variation? Round your answer to two decimal places. Do not round intermediate calculations
