Econ 1

Econ 520
Autumn 2008
Due 11/17/2008
80 pts
subsidiary Homework
Please type your answers. For answers that do non require a calculation, please provide detailed short essay answers

1. mull over a saver is looking for the opportunity to make a rattling large run off in a very short period of time. Would you recommend diversification for this individual? develop carefully why or why not.

I would not recommend diversification for this particular saver. Diversification is a center of reducing ones exposure to insecurity. In swan to make a large return 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 premium found on his assumption of the risk. The investor may in fact lag his investment because the chances of a payoff are less, but the return may be much larger.

If an investor diversifies, he is protecting 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 divergence amid standard deviation and value at risk?



exact the fight between purchasing a one-year rim CD compared with purchasing a homeowners insurance policy. Which scenario do you conceptualize is more likely to consider value at risk over standard deviation? Explain.

Standard deviation is the difference between the worst case scenario and the best case scenario, for example, the difference between the possible payoffs of a given investment and is the well-nigh common measure of financial risk. Value at risk is a measure of the worst case scenario of the loss that good 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



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