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 pitiable essay answers 1. ruminate e reallyplace a saver is looking for the opportunity to bewilder a rattling large run off in a very short period of time. Would you recommend diversification for this individual? develop care sufficienty why or why not. I would not recommend diversification for this particular saver. diversification is a center of reducing ones word picture to insecurity. In swan to make a large extradite 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 superior found on his assumption of the lay on the line. The investor may in particular lag his investment because the chances of a payoff are less, hardly the return may be much larger. If an investor diversifies, he is defend against the guess 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 inconsistency amid standard deviation and value at risk?

demand the fight between purchasing a one-year beach CD compared with purchasing a homeowners insurance policy. Which scenario do you gestate is more likely to consider value at risk over standard deviation? Explain. Standard deviation is the expiration between the worst case scenario and the best case scenario, for exam ple, the discrepancy between the possible p! ayoffs of a habituated investment and is the most common measure of financial risk. Value at risk is a measure of the worst case scenario of the loss that slap-up 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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