Final answer:
The measure most commonly used to quantify risk in property investment is standard deviation or variance, reflecting the volatility and the likelihood of actual returns deviating from expected returns. This is important as a high-risk investment might yield much higher or lower returns than expected, affecting the investment portfolio.
Step-by-step explanation:
The statistical measure used to quantify risk in property investment and other financial assets is typically the standard deviation or variance of the expected rate of return. These measures reflect the volatility of the investment and the likelihood that the actual returns will differ from the expected returns. Assessing risk is crucial because high-risk investments have a wider range of potential outcomes, which can include significantly higher or lower returns than expected.
Important considerations for investors include the expected rate of return, the potential risks (such as default risk and interest rate risk), and the liquidity of the investment. High-risk investments have actual returns that are much more volatile, which historically have been detrimental to investment portfolios when not managed properly. Investors must balance the trade-off between the potential for higher returns and the increased risk of loss.
Using this understanding, investors can make more informed decisions tailored to their personal preferences regarding risk and financial goals. Analyzing the expected rate of return helps investors anticipate the performance of their investments, while considering risk helps them to prepare for or potentially avoid adverse outcomes.