It is often assumed that an investment's distribution of returns follows a normal distribution because:
A)investment distributions are not usually bell shaped.
B)the expected value is the weighted average expected return from an investment.
C)the expected value gives a measurement of risk.
D)it enables an investment to be described by its expected value and standard deviation.

Question

Quizplus · Accepted Answer

Assuming a normal distribution allows an investment to be described by its expected value and standard deviation, which are important measures of risk and return. While investment distributions may not always be perfectly bell shaped, the assumption of normality is often a reasonable approximation in practice. The expected value alone does not provide a complete picture of risk or the distribution of returns, and it is not a measurement of risk in itself.

It Is Often Assumed That an Investment's Distribution of Returns