Final answer:
In the context of risk, the standard deviation measures the total economic risk associated with an investment, which includes both systematic risk and unsystematic risk. It reflects how much the investment returns can deviate from the expected rate of return and indicates the degree of uncertainty or variability in the returns.
Step-by-step explanation:
Risk is measured using the standard deviation, which reflects the variability or unpredictability in the returns of an investment. In the context of risk, the standard deviation measures the total economic risk associated with an investment. It quantifies how much the returns can differ from the expected rate of return. Total economic risk includes both systematic risk (market risk) and unsystematic risk (unique or specific risk) that can be diversified away. Therefore, the correct answer to what the standard deviation measures in the context of risk is C) Total economic risk.
The standard deviation is a number that indicates how much the outcomes of a statistical experiment are spread out from the mean or expected value, thus it reflects the degree of uncertainty or risk in terms of investment's return. High standard deviation indicates a high level of risk, as it suggests a wider range of potential outcomes, meaning there is more uncertainty regarding the actual returns. Conversely, a low standard deviation suggests a lower level of risk, with returns clustering more closely around the expected value.