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 = Pr + Pr2+...+PNIN = = Pin The tighter V an asset's probability distribution, the lower its risk. Three useful measures of stand-alone risk are standard deviation, coefficient of variation, and the Sharpe ratio. Standard deviation is a statistical measure of the variability of a set of observations as shown below: Standard deviation == -Select- N (-1) 'P -) i=1 If you have a sample of actual historical data, then the standard deviation calculation would be changed as follows: Estimated = N i=1 N (ft FAvg.) - t-1 N-1 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 divided by the expected 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-

Stand-alone nsk is the risk an investor mould face if he or she held only No investment should be undertaken uniess its expected rate of return is high enough to compensate for its perceived The expected rate of return is the return expected to be realized from an investment; is caiculated as the of the probabality distnibution of possible results as shown below Expected rate of return =r^=P1r1+P2r2++PNTS=i=1NP1r1 The an asset's probability distribution, the lower its nsk. Three useful measures of stand-aloce risk are standard devation, coeffoent of vanation, and the sharpe ratio. Standard devation is a statisticat measure of the variablity of a set of observatons as shown below: Standarddeviation==i=1N(nir^)2Pi If you have a sample of actual historical data, then the standard deviation cakculation would be chanoed as follows: Eatimated=N1i=1N(f1fvB)2 The coefficient of vanation is a better measure of stand elone mik than stondard devation because it is a standardized mewure of nsk per unot; it is catculated as the divided by the expected return. The coefficient of vanation shows the rakk per unit of return, so it provides a mare meaniagful rak measure when the expected returns on two athernatives are not