Tutorial4 - Tutorial 4 1(0.5p)The risk of a portfolio of financial assets is sometimes called investment risk(Radcliffe 1994 In general investment

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Tutorial 4 1. (0.5p) The risk of a portfolio of financial assets is sometimes called investment risk (Radcliffe, 1994). In general, investment risk is typically measured by computing the variance or standard deviation of the probability distribution that describes the decision maker's potential outcomes (gains or losses). The greater the variation in potential outcomes, the greater the uncertainty faced by the decision maker; the smaller the variation in potential outcomes, the more predictable the decision maker's gains or losses. The two discrete probability distributions given in the table were developed from historical data. They describe the potential total physical damage losses next year to the fleets of delivery trucks of two different firms . FirmA FirmB Loss next year Probability Loss next year Probability $ 0 .01 $ 0 .00 500 .01 200 .01 1,000 .01 700 .02 1,500 .02 1,200 .02 2,000 .35 1,700 .15 2,500 .30 2,200 .30 3,000 .25 2,700 .30 3,500 .02 3,200 .15 4,000 .01 3,700 .02 4,500
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This note was uploaded on 02/18/2012 for the course FIN 101 taught by Professor Write during the Spring '12 term at PWSZ w Gorzowie Wielkopolskim.

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Tutorial4 - Tutorial 4 1(0.5p)The risk of a portfolio of financial assets is sometimes called investment risk(Radcliffe 1994 In general investment

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