The Variance of Returns of a Portfolio of Loans Normally

question 9

True/False

The variance of returns of a portfolio of loans normally is equal to the arithmetic average of the variance of returns of the individual loans.

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Definitions:

Mean

A statistical measure representing the average value of a set of numbers, calculated as the sum of all the values divided by the number of values.

Standard Deviations

A statistical measure that quantifies the amount of variation or dispersion of a set of values.

Control Limits

The parameters within which a process or monitoring variable is considered acceptable, helping to identify deviations from expected performance.

Deming Approach

A management philosophy focused on quality improvement and reduction of variability through statistical methods, named after W. Edwards Deming.