Question

Need step by step, please.

(a) Explain precisely how stand-alone risk is measured in finance

(b) Find the expected return and coefficient of variation given the following information about an asset:

Return possibilities                    Probabilities

              .10                                     .05

              .20                                     .90

              .30                                     .05

Answer 1

(a) Measuring stand alone risk in Finance

Stand alone risk is determined considering the asset in isolation( not in a portfolio). The extent to which stand alone risk can be measured varies with the type of investment. For instance, treasury bills have a fixed rate and are generally considered risk free and thus, stand alone risk can be determined more precisely when compared to an investment in stock/shares.

However, standalone risk can be better assessed using techniques such as total beta, coefficient of variation etc