tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation.

Question

Quizplus · Accepted Answer

This statement is actually the opposite of the truth. The tighter the probability distribution of expected future returns, the lower the risk (as measured by standard deviation). This is because a tight distribution means that the range of potential returns is smaller, which means there is less uncertainty and therefore less risk.

Tighter the Probability Distribution of Its Expected Future Returns, the Greater