Financial Management Seminar 3 - 1 What are the two most...

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1. What are the two most common measures of risk, and how are they related to each other? The variance and standard deviation are the two most common measures of risk. The variance measure is used by calculating the squared deviation from the mean and the standard deviation is the measurement of the root of the variance. 2. We have 83 years of data on the S&P 500 returns, yet we cannot estimate the expected return of the S&P 500 very accurately. Why? First, the standard error of estimate is too big and since the returns have probably changed many times over the last 83 years, only the last few years would be used to estimate the expected return. However, by doing this, the estimate is not going to be accurate at all. 3. Do expected returns of well-diversified large portfolios of stocks appear to increase with
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