Chapter_8_Questions - Chapter8Questions 1.

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Chapter 8 Questions 1. Explain why a probability distribution is used to estimate risk and  return. Risky assets rarely product their rates of return—generally, risky assets earn  either more or less than was originally expected. Investment risk is related to  the probability of actually earning a low or negative return. Therefore,  probability distribution is a listing of all possible outcomes, or events, with a  probability (chance of occurrence) assigned to each outcome. 2. Explain the interpretation of a high and low standard deviation. The lower the standard deviation, the tighter the probability distribution, and,  the lower the riskiness of the stock. The higher the standard deviation, the looser the probability distribution, and,  the higher the riskiness of the stock. 3. Explain the purpose for computing the coefficient of variation. The coefficient of variation show the risk per unit of return, and it provides a  more meaningful risk measure when the expected returns on two alternatives 
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This note was uploaded on 03/31/2011 for the course ACT 2291 taught by Professor Leedaniel during the Spring '09 term at Troy.

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Chapter_8_Questions - Chapter8Questions 1.

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