When measuring the risk of an asset:
A) one must measure the 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

When measuring the risk of an asset, it is important to measure the uncertainty about the size of future payoffs. This uncertainty is often quantifiable through statistical analysis and historical data. Therefore, choice A is the best choice. Choice B is incorrect as uncertainties that cannot be quantified are not relevant to measuring risk. Choice C is incorrect as the concept of risk applies to both financial markets and financial intermediaries. Choice D is incorrect as it is possible to use other investments to evaluate the risk of an asset.

When Measuring the Risk of an Asset