2-2 Scenario Analysis (Stock Options)

2-2 Scenario Analysis (Stock Options) - QSO-510 Professor A...

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QSO-510 Professor: A. Duhon 2-2 Scenario Analysis (Stock Options) The table below shows information about the performance of stocks A and B last year. Return Standard Deviation Stock A 15 % 8.3% Stock B 14% 2.1% 1. As a financial advisor, are there factors other than return and risk that should be considered in making this decision? As a financial advisor, in addition to understanding what the risks are and the returns associated with those risks, it is important to understand your client’s risk appetite and their financial outcomes / goals. Your client might be risk averse and as such, prefer lower returns from investing in more stable known risks. On the other hand, your client might be more risky and willing to take on the added risks for the potentially larger returns. Risk appetite is just as important as knowing what returns are associated with what investments. Secondly, as a financial advisor, you need to understand what your client’s financial outcomes / goals are. Some clients might be investing as a means of
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  • Spring '13
  • WenjunGu
  • worst case scenario, Stock B

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