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

The best measures to rank the risk levels of different investment alternatives are volatility, value at risk and expected shortfall. Volatility is a measure of how much prices fluctuate when compared to their historical averages, so higher values indicate more risks while lower values suggest less. Value at Risk (VaR) is a method that assesses the maximum loss within a certain confidence interval in order to give investors an idea of how much they could potentially lose on an investment. 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.

By using these three metrics one can get a better understanding of which projects have more or less risk involved as well as what kind of returns they can expect from each one. This will help them make informed decisions about where their capital should be allocated based on both short-term and long-term goals.