When measuring the risk of an asset:
A)There may be uncertainty about the size of future payoffs
B)It is necessary to incorporate uncertainties that are not quantifiable
C)One must remember that the concept of risk applies only to financial markets, not to financial intermediaries
D)One cannot use other investments to evaluate the asset's risk

Question

Quizplus · Accepted Answer

Measuring the risk of an asset involves assessing the uncertainty about the size of future payoffs. This uncertainty can be quantified by calculating the asset's volatility or by applying probability theory to estimate the likelihood of different outcomes. However, there may still be unquantifiable uncertainties, such as political or regulatory risk, that must be taken into account when measuring risk.

When Measuring the Risk of an Asset