Investment Risk and Return Analysis

The video tutorial explains how to apply a formula to analyze large company stocks, using historical returns data from 1925 to 2013. It details the calculation of variance and standard deviation to assess investment risk. The tutorial compares the risk levels of different investments, highlighting small company stocks as the riskiest and US treasury bills as the least risky. The video concludes with a summary of the risk analysis and hints at applying the calculations to a new example.

What is the position of large company stocks on the diagram?

• Bottom line

• Third from the top

• Second from the top

• Top line

What is the return percentage for large company stocks in the first year?

• 10.5%

• 12.1%

• 13.75%

• 15.3%

How many years of returns data are covered in the analysis?

• 75 years

• 88 years

• 100 years

• 50 years

What is the formula used to calculate variance?

• Sum of squares divided by total years minus one

• Sum of squares divided by total years

• Sum of returns divided by total years minus one

• Sum of returns divided by total years

What is the historical average return used in the variance calculation?

• 13.0%

• 12.1%

• 11.8%

• 10.5%

What is the average distance from the actual return for large company stocks?

• 22.1%

• 20.2%

• 18.3%

• 15.5%

What is the next step after calculating variance in the risk analysis?

• Calculate the square root to find standard deviation

• Determine the mode

• Find the median

• Calculate the mean

Which investment has the highest standard deviation?

• Short-term government bonds

• Long-term government bonds

• Small company stocks

• Large company stocks

What is the standard deviation for small company stocks?

• 28.7%

• 35.6%

• 25.4%

• 32.3%

Which line represents small company stocks on the diagram?

• Green line

• Red line

• Blue line

• Orange line