Average Returns: Average return is the simple mathematical average of a series of returns that has been generated over a particular time period. The average return can be computed similarly like a simple average for a definite set of numbers. The two common return measures are return on assets , ROA and return on equity , ROE. Standard deviation: Standard deviation is a tool that helps in measuring the risk involved in a particular investment. The measure of standard deviation is considered the best and the most significant tool that helps in forecasting future return. The value of standard deviation obtained indicates how much predictability is possible in an investment. When the standard deviation is more than 1, it implies the series of data across the boundary. In such cases, however, control and prediction becomes a complex process. When the value of standard deviation is lower than the mean values, it implies that there is a high prediction possibility. When the value of standard deviation is lower, it gives confidence to the investor to opt for a share. To ascertain: Whether the investment has 95% possibility that the portfolio will not lose more than 30% of its value next year.

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Chapter 11, Problem 22P

Summary Introduction

Average Returns:

Average return is the simple mathematical average of a series of returns that has been generated over a particular time period. The average return can be computed similarly like a simple average for a definite set of numbers. The two common return measures are return on assets, ROA and return on equity, ROE.

Standard deviation:

Standard deviation is a tool that helps in measuring the risk involved in a particular investment. The measure of standard deviation is considered the best and the most significant tool that helps in forecasting future return. The value of standard deviation obtained indicates how much predictability is possible in an investment.

When the standard deviation is more than 1, it implies the series of data across the boundary. In such cases, however, control and prediction becomes a complex process. When the value of standard deviation is lower than the mean values, it implies that there is a high prediction possibility. When the value of standard deviation is lower, it gives confidence to the investor to opt for a share.

To ascertain: Whether the investment has 95% possibility that the portfolio will not lose more than 30% of its value next year.

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