If three investment alternatives all have some degree of risk and different expected returns, which   measures could best be used to rank the risk levels of the projects?

Finc400 week 5 quiz | Business & Finance homework help

To rank investment options according to their risk, the three best metrics are volatility (price at risk), expected shortfall and value. Volatility measures how prices vary when compared with their average historical values. Higher values mean more risk, while lower values show less. Value at risk (VaR), a technique that calculates maximum losses within a given confidence interval, gives investors an estimate of the amount they might lose. Lastly, expected shortfall (ES) is similar to VaR but it takes into consideration potential losses beyond the confidence interval used in VaR calculations – this provides investors with better insight into extreme losses that might occur due to unforeseen events.

These three metrics can help you determine which projects are more risky and what type of return they will bring. It will allow them to make better decisions regarding where they should allocate capital, based both on short-term as well as long-term objectives.