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1.
Risk of a single asset is usually measured by which of the following?
- A. Variance
- B. Variance
- C. Variance
- D. Variance
Answer: Option B
Explanation:
The most common measure of risk for a single asset is standard deviation.
Explanation: Standard deviation quantifies how much an asset's returns deviate from its expected average return, indicating how volatile or risky an investment is. A higher standard deviation means greater volatility and higher risk, while a lower standard deviation signifies more stable returns and less risk.
Key points about standard deviation as a risk measure:
Explanation: Standard deviation quantifies how much an asset's returns deviate from its expected average return, indicating how volatile or risky an investment is. A higher standard deviation means greater volatility and higher risk, while a lower standard deviation signifies more stable returns and less risk.
Key points about standard deviation as a risk measure:
- Interpretation: Higher standard deviation = more risk, lower standard deviation = less risk.
- Calculation: It involves calculating the average of the squared differences between historical returns and the expected return.
- Used for comparing assets: By comparing the standard deviations of different assets, investors can assess which one is relatively more or less risky.
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