Which of the following statements is/are true about the variance of the possible future returns on a ﬁnancial asset?
A) The standard deviation of the possible returns on an asset is equal to the square root of the variance of the possible returns.
B) Low-variance securities are high-standard deviation securities.
C) The variance and the standard deviation of the possible returns on a risk-free asset are negative.
D) Standard deviation of returns can be computed without considering probabilities, but variance cannot.
E) All else equal, assets with high average returns will also have high standard deviations relative to those with lower returns.

Question

Quizplus · Accepted Answer

The standard deviation is equal to the square root of the variance, as per the formula for calculating standard deviation. B is false, as low-variance securities are low-standard deviation securities. C is false, as variance and standard deviation cannot be negative. D is false, as both variance and standard deviation need probabilities to be computed. E is not always true, since it is possible for an asset with high average returns to have low standard deviation (less risky).

Which of the Following Statements Is/are True About the Variance