When calculating the variance of a portfolio's returns squaring the deviations from the mean results in ________.
I.preventing the sum of the deviations from always equaling zero
II.exaggerating the effects of large positive and negative deviations
III.a number in units of percentage of returns
A) I only
B) I and II only
C) I and III only
D) I, II and III

Question

Quizplus · Accepted Answer

Squaring the deviations from the mean helps prevent the sum of deviations from always equaling zero (I) but it also exaggerates the effects of large positive and negative deviations (II). It does not result in a number in units of percentage of returns (III).

When Calculating the Variance of a Portfolio's Returns Squaring the Deviations