ГлавнаяRisk and ReturnUsing Probability Distributions to Measure Risk

Using Probability Distributions to Measure Risk

As we have just noted, for all except risk-free securities the return we expect may be different from the return we receive. For risky securities, the actual rate of return can be viewed as a random variable subject to a probability distribution. Suppose, for example, that an investor believed that the possible one-year returns from investing in a particular common stock were as shown in the shaded section of Table, which represents the probability distribution of one-year returns.

This probability distribution can be summarized in terms of two parameters of the distribution: (1) the expected return and (2) the standard deviation.