Which of the Following Statements Is True

question 22

Multiple Choice

Which of the following statements is true?

• A) Calculus of variations (CV) adjusts standard deviations to compare the risk of securities with different expected returns.
• B) Risk-averse investors prefer securities with high standard deviations.
• C) An increase in risk will result in an increase in the standard deviation.
• D) Standard deviations can be computed for stock returns, but not for bond yields.
• E) If the returns from a security are normally distributed, 86% of the observations fall within one standard deviation of the expected value.

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Definitions:

Probability

The likelihood of a particular event happening.

Moral Hazard

A situation in which one party engages in risky behavior or fails to act in good faith because another party bears the consequences or costs.

Taxi Driver

An individual who operates a car for hire to transport passengers as a profession.

Piece-rate Garment Worker

describes an employee in the clothing manufacturing sector who is paid based on the number of pieces or units they produce, rather than receiving an hourly wage.