Contents
Time Value of Money
Annuities
Perpetuities
Kinds of Interest Rates
Future Value of an Uneven Cash flow
Probability Distribution
Standard Deviation
CAPM
Security Market Line
Bond Valuation
Stock Valuation
Cost of Capital
The Balance Sheet
Capital Budgeting
Hall of Fame
Credit Report
Forex
401K
ETFs
Futures
Inflation
IPOs
Mergers
Online Scams
Calculators
Financial Terms
Scientific Terms
Military Terms
Financial Charts
Unemployment
Fuel Mileage
Sports Finance
Energy Efficiency

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Disclaimer

Standard Deviation

We can measure risk by using standard deviation. Higher standard deviation means higher risk.

Here is the example from the
probability distribution page

 Economic Outcome Probability Return on Investment Great 20% 25% Good 40% 15% So-So 30% 5% Really Bad 10% 0%

(Sorry, I don't know how to write sigma and the square root sign in html, so I can't show you the formula for Standard Deviation, but you can still plug in your numbers to the chart below)

 Economic Outcome Return on Investment minus ERR - the Expected Rate of Return equals answer squared times Probability of the Economic Outcome equals Answer Great 25% - 12.5% = 12.5 156.25 X 20% = 31.25 Good 15% - 12.5% = 2.5 6.25 X 40% = 2.5 So-So 5% - 12.5% = 7.5 56.25 X 30% = 16.875 Really Bad 0% - 12.5% = 12.5 156.25 X 10% = 15.625 Total = 66.25
• So the total is 66.25. This is called the Variance.
• The square root of 66.25 = 8.139
• So the Standard Deviation is 8.139