2 - I.Stand-alone risk 1 Expected rate of return a weighted...

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I. Stand-alone risk 1) Expected rate of return ( ) – a weighted average of the various possible outcomes; The tighter (or more peaked) a distribution, the more likely it is that the actual outcome will be close to the expected value & the less likely it is that the actual return will end up far below the expected return; The tighter the distribution of expected future returns. 2) Standard deviation ( ) – probability weighted average deviation from the expected value; provides an idea of how far above or below the expected value the actual value is likely to be; The smaller the , the tighter the probability distribution (the lower the risk of the stock). 3) Variance ( ) – the square of the standard deviation 4) Estimated standard deviation (S) – used only if sample returns data over some period are available 5) Coefficient of variation ( CV ) – shows the risk per unit of return & provides a more meaningful basis for comparison when the expected returns on alternative investments are not the same; Because it captures the effects of both risk &
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This note was uploaded on 06/09/2009 for the course FIN 310 taught by Professor Caples during the Spring '09 term at McNeese.

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2 - I.Stand-alone risk 1 Expected rate of return a weighted...

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