Please help with quantitatively evaluating the following data by calculating the expected impact, the standard deviation, and the coefficient of variation for each risk. Additionally, what do these statistics tell you about the possible risks?
For commodity price risk, there is a 25% chance that oil prices will increase, which would reduce profits by $25,000. However, there is a 25% chance that oil prices will fall significantly, which would increase profits by $50,000. There is also a 50% chance that oil prices will only fall slightly, improving profits by $5,000. With regard to the sovereign risk, there is a 50% chance that the country's government will impose a new tax, which would reduce profits by $50,000, and a 50% chance that no change will be made to the tax code.
Please see the explanations below and let me know if you have any questions. Feel free to assign posts to me exclusively in the future so that I can take a first look.
First let's review the definitions of expectation, variance, standard deviation, and coefficient of variation.
Expectation (E): the sum of the possible outcomes, weighted by their probabilities
The expert examines quantifying risk evaluations.