# Characterizing Risk

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### overview

Respond to three questions and solve three computational problems about the risk-and-return relationship.

Every investment carries a different level of risk and return. It is useful to explore different measures of risk and learn how to compare risk with the return, as well as differentiate between standalone risk and portfolio, or market, risk.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 2: Define finance terminology and its application within the business environment.
• Explain what the coefficient of variation measures.
• Calculate the dollar return on an investment.
• Calculate the percentage of return on an investment.
• Calculate the coefficient of variation of stocks.
• Explain how risk is measured.
• Competency 3: Evaluate the financial health of an organization.
• Identify the total level of risk of a stock.
• Define the concept of risk.
• Identify a source of firm-specific risk.

### Assessment Instructions

Respond to the questions and complete the problems.

#### Questions

In a Word document, respond to the following. Number your responses 1–3.

1. Define risk, and explain how it is measured.
2. Identify a source of firm-specific risk. What is the source of market risk?
3. Explain what the coefficient of variation measures.

Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.

#### Problems

In either a Word document or Excel spreadsheet, complete the following problems.

• You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
• If you choose to solve the problems algebraically, be sure to show your computations.
• If you use a financial calculator, show your input values.
• If you use an Excel spreadsheet, show your input values and formulas.