What is the standard deviation of Investment #2?

What is the standard deviation of Investment #2?

• A. 19%
• B. 15%
• C. 11%
• D. 8%

Answer: (C)

To find the standard deviation of Investment #2, it's necessary to understand that standard deviation measures the dispersion of returns around the mean. A lower standard deviation indicates that the investment's returns are closer to the average, suggesting less volatility. In this case, the answer of 11% suggests that Investment #2 has a moderate level of risk, as its returns can fluctuate but are generally stable relative to the average. Calculating standard deviation involves determining the average return of the investment, finding the squared deviations from the average, and then taking the square root of the average of those squared deviations. The value of 11% indicates that the variability in Investment #2's returns allows for a reasonable expectation of predicting its performance based on historical data, making it a suitable choice for investors who prefer a balance between risk and return. Thus, the choice of 11% as the standard deviation reflects the investment's risk profile, providing insight into how consistently it has performed in relation to its average return.

To find the standard deviation of Investment #2, it's necessary to understand that standard deviation measures the dispersion of returns around the mean. A lower standard deviation indicates that the investment's returns are closer to the average, suggesting less volatility. In this case, the answer of 11% suggests that Investment #2 has a moderate level of risk, as its returns can fluctuate but are generally stable relative to the average.

Calculating standard deviation involves determining the average return of the investment, finding the squared deviations from the average, and then taking the square root of the average of those squared deviations. The value of 11% indicates that the variability in Investment #2's returns allows for a reasonable expectation of predicting its performance based on historical data, making it a suitable choice for investors who prefer a balance between risk and return.

Thus, the choice of 11% as the standard deviation reflects the investment's risk profile, providing insight into how consistently it has performed in relation to its average return.