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a given asset, which is called the range. It is found by subtracting the return
associated with the pessimistic outcome from the return associated with the
optimistic outcome. The greater the range, the more variability/risk the asset is said
to have.
2) Probability Distributions, is a model that relates probabilities to the associated
outcomes. The simplest type of probability distribution is a bar chart, which
shows only a limited number of outcomes and associated probabilities for a given
period. If we know all the possible outcomes and associated probabilities, we could
develop a continuous probability distribution, which is a probability distribution
showing all the possible outcomes and associated probabilities for a given event.
The most common statistical measure used to describe an investment’s risk is its
standard deviation, which measures the dispersion around the expected value. The
expected value of return, is the average return that an investment is expected to
produce over time.
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