The total risk measures the total variability or volatility of an investment. Which of the following is not a way to estimate total risk?

The total risk measures the total variability or volatility of an investment. Which of the following is not a way to estimate total risk?

By forming an objective probability distribution based on historical data.
By assigning subjective probabilities to various possible outcomes.
By calculating the beta of the investment.
None of the above arrives at an estimate of total risk.

Expert Solution

The beta is a reflection of systematic risk and it doesn't consider the unsystematic risk according to Capital Asset pricing model. It is not a way of measuring total risk. Beta only consider the market related factors.

All the other statements are reflective of total risk.

Correct answer is option (C) By Calculating the beta of the Investment.

jeff jeffy answered 2 years ago

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