1. Calculate the standard deviation, ?r, for each of the three assets’ returns. Which appears to have the greatest risk? 2. Calculate the coefficient of variation, CV, for each of the three assets’ returns. Which appears to have the greatest relative risk? Solution Return of Asset = Sum of Products of Probability of Returns & the Return of Asset in that Probability. So Return of Asset F, Rf = 0.1*40% + 0.2*10% + 0.4*0% + 0.2*-5% + 0.1*-10% So Rf= 0.04 or 4% Similarly Rg = 0.11 or 11% & Rh= 0.1 or 10% a)Standard Deviation,S.D.f =Sqrt( {( Rf - R1)2+ ...... + ( Rf - R5)2}/5) So Std Dev Asset F, Sf = 0.1803 or 18.03% Similarly Std Dev Asset g, Sg = 0.2264 or 22.64% & Sh = 0.2 or 20% So greatest risk is with stock with highest Std.Dev. i.e. Asset G b) Coeff. of Variation = Std. Dev./ Mean or Return in this case So CoVf = Sf/Rf = 4.51 ; CoVg = Sg/Rg = 2.06; CoVh = Sh/Rh = 2 So the highest relative risk signified by Coeff. of Variation is with Asset F.