Econ 1

Econ 520 Autumn 2008 Due 11/17/2008 80 pts foot soldier Homework Please type your answers. For answers that do non require a calculation, please provide detailed before long essay answers 1. mull e reallywhere a saver is looking for the opportunity to bemuse a rattling large run off in a very short period of time. Would you recommend diversification for this individual? develop care full(a)y why or why not. I would not recommend diversification for this particular saver. diversification is a center of reducing ones moving picture to insecurity. In swan to make a large reproduction in a short time, an investor must assume a large bump, the findier the investment, the higher(prenominal) the potential payoff. This is the case because the investor is paid an investment agio found on his assumption of the chance. The investor may in detail lag his investment because the chances of a payoff are less, scarce the return may be much larger. If an investor diversifies, he is protect against the risk inherent when making an investment. If the investor wants to make a large, short circumstance return he must invest in riskier investments, therefrom diversification would not serve the investors needs. 2.What is the loss amid standard deviation and value at risk?

take the fight between purchasing a one-year run along CD compared with purchasing a homeowners insurance policy. Which scenario do you create mentally is more likely to consider value at risk over standard deviation? Explain. Standard deviation is the deviance between the worst case scenario and the best case scenario, for example, the contrast b etween the possible payoffs of a effrontery! investment and is the to the highest degree common measure of financial risk. Value at risk is a measure of the worst case scenario of the loss that sound deal be incurred. (the worst possible loss over a specific time horizon, at a given probability) A person purchasing a bank CD would be more concerned with standard deviation. Since banks are very lasting in the U.S. the...If you want to get a full essay, effect it on our website: OrderEssay.net

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