Busi 331 Answer Guide 9 Lesson 9 - Risk Determination

UBC Real Estate Division 2019 BUSI 331 Answer Guide 9 LESSON 9: Risk Determination, Measurement, and Analysis 1. Answer : 2 The three curves have identical shapes so their standard deviations are the same. They are at different positions along the horizontal axis , which means that they have different expected values. 2. Answer : 1 The two projects have the same expected values, but Project B is clearly riskier as the curve is flatter. Although the expected values of the two projects are identical, there is a higher probability of obtaining a value that is less than or greater than the expected value with Project B than with Project A. Therefore, the prudent and ris k-averse investor will choose Project A providing the investor believes that variability is an undesira ble element of risk. 3. Answer : 1 Some of the specific risks unique to one investment can be protected against through diversification . The larger the portfolio of investments is , the smaller the effect of a single investment 's risk on the overall return. 4. Answer : 4 Distributions cannot be compared to each other until they are normalized. This is done by making the expected values