The Standard Deviation of the Returns of Stock a Is

question 10

Multiple Choice

The standard deviation of the returns of Stock A is 45.85%, and the standard deviation of the returns of Stock B is 52.7%. Which of the following statements about the stocks is correct?

• A) Stock A has less tight probability distribution, and hence lower total risk.
• B) Stock A has tighter probability distribution, and hence lower total risk.
• C) Stock B has less tight probability distribution, and hence lower total risk.
• D) Stock B has tighter probability distribution, and hence lower total risk.
• E) Stock B has lower risk, but nothing can be said about the probability distribution.

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Definitions:

Average Propensity

The average tendency of an entity (such as a household) to spend a portion of income; can pertain to consumption or saving.

Disposable Income

Disposable income is the portion of an individual's or household's earnings left over for savings and expenditures after paying off income taxes.

Autonomous C

Autonomous consumption, the level of spending not influenced by current levels of income.

Induced C

Induced consumption, which refers to the spending by households that varies with income levels.