Standard deviation, Financial Management

Assignment Help:

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


(Xi)

(Pi)

  1328_standard deviation.png

  1163_standard deviation1.png

 1157_standard deviation2.png


30%

0.30

10.2

104.04

31.212

18%

0.50

-1.8

3.24

1.620

9%

0.20

-10.8

116.64

23.328


Total

 

 

 

56.160                                          

Standard Deviation = √56.160 = 7.49%

Related Discussions:- Standard deviation

Financial maket, knowledge of financial market is power discuss

knowledge of financial market is power discuss

Planning and controlling the various business activities , Explain and crit...

Explain and critically evaluate : a)  The relevance of committed fixed costs in deciding the optimal mix of products to maximum a company's profit and the importance of relevant

The beta of a firm, Suppose the market portfolio is equally likely to incre...

Suppose the market portfolio is equally likely to increase by 30% or decrease by 10%. a.    Calculate the beta of a firm that goes up on average by 43% when the market goes up a

Factors affecting choice of a minimum cash balance amount, Explain the fact...

Explain the factors affecting the choice of a minimum cash balance amount. The smallest cash balance amount is determined by how easy it is to raise funds when needed, how expe

Equilibrium of an exchange economy, The economy consists of two consumers, ...

The economy consists of two consumers, A and B. Both consumers are endowed with one unit of good 1 and one unit of good 2. Consumer A is entirely indi?erent between all consumption

Financial and economics evaluation, An offer given by charitable trust to d...

An offer given by charitable trust to develop and build a facility on a 10000 sqmt of plot in a prime locality of pune where 5000 sqmt of area will be used by the trust for housing

Theoretical spot rates, The theoretical spot rates for treasury secur...

The theoretical spot rates for treasury securities represent the appropriate set of interest rates that should be used to value the risk from default-free cash fl

Explain about money market mutual funds, Q. Explain about Money Market Mutu...

Q. Explain about Money Market Mutual Funds? Money Market Mutual Funds: Money market mutual funds (MMMFs) focus on short-term marketable securities such as TBs, CPs, CDs or call

Explain due date and due diligence, Q. Explain Due Date and Due Diligence? ...

Q. Explain Due Date and Due Diligence? Due Date -Every governing agency and its forms scheduled reporting and most significantly payments have a required due date. It's this

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd