Page 21 - DBP5043
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MEASUREMENT OF RISK
The indicators often use to measure the risks of an investment are
known as Standard Deviation (б) and coefficient variation (CV).
Standard Deviation (б):
The standard deviation is used to measure the distribution of
results that may occur around the expected value.
The higher the standard deviation, the higher the returns will be
obtained and the higher the risk to be faced.
Standard Deviation (б) = √ Σ (R - )² x P
R
R = rate of return may occur
R = expected rate of return
P = probability
Example 3:
Economic Probability Rate of Rate of Rate of
conditions (%) Return Return on Return on
on Stock A Stock B (%) Stock C (%)
(%)
Growing 20 14 25 36
Stable 30 12 20 30
Down 50 10 15 28
Calculate the risk for stock above?
Example 4 :
Based on the question in example 2, calculate the risk of each stock?
