ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The term “risk” is used interchangeably with “uncertainty” to refer to the variability of returns associated with a given asset. In the most basic sense, risk is a measure of the uncertainty surrounding the return that an investment will earn.

Detailed explanation-2: -Risk is a measure of the uncertainty surrounding the return that an investment will earn. Risky assets provide uncertain returns. Therefore, one way of measuring the risk of an asset is to quantify the degree of variation (or uncertainty) of the returns, such as the standard deviation of returns.

Detailed explanation-3: -Variability refers to the divergence of data from its mean value, and is commonly used in the statistical and financial sectors. Variability in finance is most commonly applied to variability of returns, wherein investors prefer investments that have higher return with less variability.

Detailed explanation-4: -Sharpe Ratio. The Sharpe ratio measures investment performance by considering associated risks. To calculate the Sharpe ratio, the risk-free rate of return is removed from the overall expected return of an investment. The remaining return is then divided by the associated investment’s standard deviation.

Detailed explanation-5: -Variability is a term used to describe how much data points in any statistical distribution differ from each other and from their mean value. The statistical tools used to measure variability are range, standard deviation, and variance.