Standard deviation is a statistical measure of the dispersion of returns around the expected value whereby a larger variance or standard deviation indicates greater dispersion. The idea is that the more dispersed the potential returns, the greater the uncertainty of the potential outcomes. True False

Standard deviation is a statistical measure of the dispersion of returns around the expected value whereby a larger variance or standard deviation indicates greater dispersion. The idea is that the more dispersed the potential returns, the greater the uncertainty of the potential outcomes. True False

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 5QTD

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This variance is the difference involving spending more or using more than the standard amount. A. favorable variance B. unfavorable variance C. no variance D. variance
Which one of the following statements is TRUE? O a. If the distribution of returns for an asset has a variance of zero, then covariance of returns between that asset and the returns any other asset must equal zero. O b. The covariance allows us to gauge the strength of the relationship between stocks. O c. While the variance and the standard deviation both measure the variability of the returns, the variance is easier to interpret because it is in the same units as the returns themselves. O d. If two assets with return correlation coefficients less than one make up a portfolio, then the portfolio does not take advantage of any diversification benefits.
The variance of expected returns is equal to the square root of the expected returns. a. True b. False
The variance and its square root, the standard deviation, are the most commonly used measures of volatility. True or False
Which of the following statements about the mean-variance criterion is correct? The mean return equals the riskless interest. Investors select assets that provide the highest variance for the same or higher expected return. Investors select assets that provide the highest rate of return. Investors select assets that provide the lowest variance for the same or higher expected return.
Describe what is meant by measures of dispersion: standard deviation and variance. How can this be used when a trader is developing a strategy?
Why do some investors prefer to use Lower Partial Standard Deviations(LPSD) as compared to the standard deviation?
Which of the following statements regarding standard deviation is TRUE: Group of answer choices A measure of the dispersion of a random variable The annualised volatility The square root of volatility Always expressed in %
Which of the following is NOT true with respect to standard deviation as a measure of risk? Group of answer choices Standard deviation of return measures the sum of diversifiable and undiversifiable risk for a share. 2. Standard deviation contains more information about distribution of returns by comparison with the more crude approach of measuring the range of possible extreme values for return. 3. Standard deviation is measured in standard units, unlike variance which is measured in squared units, 4. Unlike Beta, standard deviation of return measures undiversifiable risk.
The concept of beta is most closely associated with:a. Correlation coefficients.b. Mean-variance analysis.c. Nonsystematic risk.d. Systematic risk.
Which of the following is a justification framework for the mean-variance approach? a)if trading is continuous and asset prices follow a multi-dimensional geometric Brownian motion with drift.b)If the investors’ state-specific utility is an exponential function of the assets variance. c)If investors’ preferences for risk are inter-dependent and serially correlated with asset returns.d)If the returns of all assets follow the Mandelbrot distribution.
Illustrate the calculation of the standard deviation of returns?