Effect of Risk on Shape of Probability Distribution
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The probability distribution of a less risky expected return is more peaked than that of a riskier return. What shape would the probability distribution have for (a) completely certain returns and (b) completely uncertain returns?
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Solution Summary
Shape of probability distribution of returns is influenced by the riskiness of a security. Solution discusses the shape of probability distribution of returns in the two extreme given cases.
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In case of less risky expected return, spread (variance) is low i.e. probability distribution is peaked. If the riskiness is further reduced, variance further decreases and it becomes ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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