Chapter 5 - Chapter 5 Conceptual Problems 2. It is...

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Chapter 5 Conceptual Problems 2. It is important to quantify risk so that you know what your expected return or loss may be before venturing into investing. It is also important to know the probability of what your investment will do in the future. This will help an investor make the proper decisions in order to receive the largest payoff for taking a risk. 4. a. The expected value would be $1,030, or a growth of 3%. b. The standard deviation would be $114.24 or 11.4%. c. The risk premium for a stock market investment for a risk-free return of 7% would be 4.4%. 6. This investment was risky because if Enron went under, which it did, the employees would have no pension plan. When the Enron stock went down, all of the employees with their pension in the stocks lost everything. This risk could have been reduced by not putting their pensions or at least not this much of the pensions into the stock of the company. No one can predict that
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This note was uploaded on 10/31/2010 for the course ECON 2310 taught by Professor Williams during the Spring '10 term at Western New Mexico.

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Chapter 5 - Chapter 5 Conceptual Problems 2. It is...

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