When Calculating the Variance of a Portfolio's Returns Squaring the Deviations

question 74

Multiple Choice

When calculating the variance of a portfolio's returns squaring the deviations from the mean results in ________.
I.preventing the sum of the deviations from always equaling zero
II.exaggerating the effects of large positive and negative deviations
III.a number in units of percentage of returns

• A) I only
• B) I and II only
• C) I and III only
• D) I, II and III

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Definitions:

Reward to Volatility

A measure of the return an investment provides relative to its volatility, used in evaluating the performance of an investment's risk.

Portfolio Excess

Refers to the amount by which the return of a portfolio exceeds the return of a benchmark or risk-free rate.

Sharpe Measure

A method to assess the performance of an investment by adjusting for its risk, comparing the excess return over the risk-free rate to the standard deviation of returns.

Dollar-Weighted

A method of calculating an investment's return that takes into account the time and amount of each cash flow.