Asked by Courtney Morris on Jun 17, 2024
Verified
Which of the following is a correct definition of risk?
A) Risk is the probability that returns will be less than expected.
B) Risk is the variability of the probability distribution of returns.
C) Both of the above are correct.
D) Neither of the above is correct.
Probability Distribution
A probability distribution is a mathematical function that provides the probabilities of occurrence of different possible outcomes in an experiment.
Variability
The extent to which data points in a set differ from each other and from the mean of the set; a measure of dispersion or volatility.
- Describe the notion of risk within investment domains and grasp its quantification methods.
Verified Answer
MG
Maria GaytanJun 21, 2024
Final Answer :
C
Explanation :
Both options A and B define risk accurately. Option A focuses on the chance that an investment may not yield expected returns. Option B takes into consideration the range of outcomes or variations in potential returns that an investment has, meaning the more variability, the higher the risk. Therefore, both options should be taken into account when considering the risk of an investment.
Learning Objectives
- Describe the notion of risk within investment domains and grasp its quantification methods.