The standard deviation of downside risk is 6.083%, calculated as follows:

The rate of return lower than the risk-free rate: 2%, -3%

LPSD ^2=[(2%-3%)^2+(-3%-3%)^2]/(2-1)

LPSD=0.6083=6.083%

Extended information:

1. Standard deviation of return rate

The standard deviation of return rate measures the dispersion of the actual return rate around the expected return rate (ie, the average return rate) Degree reflects the risk of investment. The standard deviation of the return rate is obtained by first finding the average sum of the squared deviations of the return rate and then taking the square root.

The calculation process is to subtract the expected rate of return from the actual rate of return to obtain the dispersion of the rate of return; then square each deviation, multiply it by the probability corresponding to the actual rate of return, and sum it up to get The variance of the return rate, the standard deviation is obtained by taking the square root of the variance.

The so-called expected return standard deviation decision-making method refers to a method of making risk-based decisions based on the expected return and return standard deviation of the investment.

2. Types of expected return standard deviation decision-making methods, usually there are two specific methods:

1. Maximum expected return method.

Using the expected value of future income as a representative of future real income, and using the net present value method, rate of return method, etc. to make investment decisions based on this, is called the maximum expected income method. It is a simple, easy and commonly used decision-making method under risk conditions (under uncertain future returns).

The disadvantage of the expected return method is that it does not take into account the risk profile, so investment is risky.

2. Expected standard deviation method.

Harry Markowitz proposed a decision-making law that is accepted by everyone, the so-called expected standard deviation method.

This law can be described as follows: Among the two projects A and B, if one of the following two conditions is met, project A will be better than project B:

1) A The expected return of A is greater than or equal to the expected return of B, and the standard deviation of A's return is less than the standard deviation of B's ??return. The formula is expressed as: E(A)≥E(B) and (A)< (B).

2) A’s expected return is greater than B’s expected return, and A’s return standard deviation is less than or equal to B’s return standard deviation: E(A)E(B) and (A)≤(B) .