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One common measure of risk is the probability of a loss
One common measure of risk is the probability of a loss. Select one: O True O False
The tuition in a private university was $25,000 per academic year in 1999. If the inflation rate has been averaging at the rate of 3%, how much one should have invested in 1999 to send a kid to this private university in 2017. Assume the investment earned an 8% return.
Expert Solution
Q1. False.
Probability of loss is not a measure of risk.
Some common measures of risk include Standard deviation, beta, Value at risk (VaR), conditional value at risk (CVaR), R-squared etc.
Probability of loss is not a measure that's commonly used to measure risk. So, the statement is False.
Q2.
Let A be the amount required to be invested in 1999.
Inflation rate = 3% = 0.03
Rate of return on investment= 8%= 0.08
Number of years = 2017-1999 = 18
---> A[*1.0818/1.0318] = $25000
---> 2.347*A = $25000
---> A = $10,651.89 ~ $10,651.89
So, one should invest $10,651.89 in 1999.
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