Standard deviation, Financial Management

Standard Deviation

An investment must be evaluated on two dimensions - rate of return and risk. An investor cannot enjoy a high return without any exposure to risk. The higher the return, the higher is the risk involved and the lower the exposure to risk, the lower would be the return. Risk is defined as the chance of injury, damage or loss. Risk in investments is the chance of the actual returns realized being much lower than the expected returns.

The risk in an investment is normally measured by the variance or standard deviation in the returns from the mean or expected return. The idea is, the higher the value of dispersion (that is, variance or standard deviation), the higher is the risk. If all possible or actual returns lie close to the mean return, then the total risk in investment is less and the investor has an assurance that at least the mean rate of return will be earned on the investment.

The variance and standard deviation of returns from the share of Godavari Petrochemicals Limited may be calculated as under:

Rates of Return

Probability of Occurrence

Deviations from Expected Rate of Return

Squares of Deviation

Probability x Squares of Devation



  1328_standard deviation.png

  1163_standard deviation1.png

 1157_standard deviation2.png





















Standard Deviation = √56.160 = 7.49%
Posted Date: 9/17/2012 1:37:19 AM | Location : United States

Related Discussions:- Standard deviation, Assignment Help, Ask Question on Standard deviation, Get Answer, Expert's Help, Standard deviation Discussions

Write discussion on Standard deviation
Your posts are moderated
Related Questions
ACT presently is all-equity financed. This reflects the stance of the former CEO, a dominant personality who stated repeatedly: "I don't want us to be in thrall to the demands of t

Product Advantages: A firm that has developed a reputation for superior products in the domestic market may find acceptance from the foreign consumers as well. Hence, such firm

Explain about the Valuing Securities Objective of any investor is to maximise expected returns from his investments, subject to various constraints, primarily risk. Return is m

Q. Explain about Loans - Forms of Bank Finance? When a bank makes an advance in lump-sum against some security it is called a loan. In Case of a loan, a specified amount is san

Define country risk. How is it different from political risk? Country risk is a broader quantify of risk as compared to the political risk, as the former encompasses political ri

A division of Saron plc is considering introducing a new product.  The product is the result of work undertaken by the division's research and development department - the expendit

Define a Convertible Bond A convertible bond issue permits the investor to exchange the bond for a pre-defined number of equity shares of the issuer.  The convertible bond’s fl

undertake a critical review of the current academic literature to determine the reasons for benefits of and the costs to companies of cross listing.

a. Talk about the role of banking in business.  b. Set out the precise role played by Investment Banking and the challenges of corporate governance.