This question requires qualitative explanations that display your understanding of the concepts of risk and return. The article of Simon Hoyle gives some understanding of the concepts of risk and return. However, it was published in a newspaper where the target readers were not all educated in finance. You are required to answer the following questions while providing deeper insights about the concepts of risk and return than those that are provided in the article. Read the article by Simon Hoyle and answer questions 1-4.

Question 1

Explain how the risk of shares can be calculated by the standard deviation. Your explanation should include the usage of the dispersion statistics, the normal distribution, and the probability, and how those concepts are utilized in real life finance.

Question 2

Apparently, Simon Hoyle's article did not mention what would happen to the risk if an investor decided to buy more than one share. Explain how adding new shares to a portfolio can affect the risk and return of that portfolio. You should use the concepts of correlation coefficient and the standard deviation in your explanations.

Question 3 As you know, the risk of two assets is calculated by getting the square root of the equation: P 2 = w1 21 2 + w2 22 2 + 2w1w212 12 Explain what would happen if one of the two assets was a risk-free asset. In other words, what would be the risk of the combination of the two assets? You have to explain that in accordance with the above equation.

Question 4 Explain the distinction between Systematic and Unsystematic Risk? How can investors avoid each one of those risk?