What Is the Difference Between Standard Deviation and Value at Risk

question 78

Essay

What is the difference between standard deviation and value at risk? Consider the difference between purchasing a one-year bank CD compared with purchasing a homeowner's insurance policy. Which scenario do you believe is more likely to consider value at risk over standard deviation? Explain.

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Definitions:

Comparative Balance Sheet

A financial statement that presents the financial position of a company at two or more different points in time.

Operating Activities

Day-to-day actions that are involved in running a business, such as selling products, managing costs, and paying employees.

Cash Dividend

A disbursement issued to shareholders from a firm's profits, often in cash format.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders’ equity at a specific point in time, providing a snapshot of the firm's financial condition.