We can be more confident that standard deviation is a good measure of the risk of an asset (held in isolation)when
A) the number of different possible returns on the asset rises.
B) the probabilities attached to the possible returns on the asset are less equal.
C) the possible returns on the asset are distributed symmetrically around the mean.
D) the asset has a longer maturity.

Question

Quizplus · Accepted Answer

Standard deviation assumes a normal distribution of returns, which is symmetrical around the mean. Therefore, when the possible returns on the asset are distributed symmetrically around the mean, standard deviation is a good measure of risk. Options A, B, and D are irrelevant criteria to judge the validity of standard deviation as a measure of risk.

We Can Be More Confident That Standard Deviation Is a Good