bre44380_ch08_192-220.indd 194 09/30/15 12:45 PM bre44380_ch08_192-220.indd 195 09/30/15 12:45 PM
194 Part Two Risk◗ FIGURE 8.2 Investments A and B both have an expected return of 10%, but because investment A has the greater
spread of possible returns, it is more risky than B. We can measure this spread by the standard deviation. Investment A
has a standard deviation of 15%; B, 7.5%. Most investors would prefer B to A. Investments B and C both have the same
standard deviation, but C offers a higher expected return. Most investors would prefer C to B.Return, %ProbabilityProbabilityProbabilityInvestment A2 56.0 2 50.0 2 44.0 2 38.0 2 32.0 2 26.0 2 20.0 2 14.0^2 8.0^2 2.04.010.016.022.028.034.040.046.052.058.064.070.0Return, %Investment B2 56.0 2 50.0 2 44.0 2 38.0 2 32.0 2 26.0 2 20.0 2 14.0^2 8.0^2 2.04.010.016.022.028.034.040.046.052.058.064.070.0Return, %Investment C2 56.0 2 50.0 2 44.0 2 38.0 2 32.0 2 26.0 2 20.0 2 14.0^2 8.0^2 2.04.010.016.022.028.034.040.046.052.058.064.070.0