The Variance of an Investment's Returns Is a Measure of The

question 8

Multiple Choice

The variance of an investment's returns is a measure of the:

• A) volatility of the rates of return.
• B) probability of a negative return.
• C) historic return over long periods.
• D) average value of the investment.

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Definitions:

Market Risk Premium

The additional return an investor expects from holding a risky market portfolio instead of risk-free assets.

Expected Inflation

The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling, as anticipated by consumers, businesses, and investors.

Required Return

The minimum rate of return on an investment that investors expect to compensate them for the level of risk.

Beta

A measure of a stock's volatility relative to the overall market, indicating its risk compared to the market average.