The Advantage of Using Mean Absolute Deviation Rather Than Variance

question 119

Multiple Choice

The advantage of using mean absolute deviation rather than variance as a measure of dispersion is that mean absolute deviation ________.

• A) is less sensitive to extreme deviations
• B) requires fewer observations to be a valid measure
• C) is a relative measure rather than an absolute measure of risk
• D) considers only unfavorable (negative) deviations from the mean

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Definitions:

Present Obligation

A duty or responsibility that exists at the reporting date, typically requiring an outflow of resources.

Contingent Liability

A potential financial obligation that may occur in the future depending on the outcome of a specific event, not confirmed to exist or be measurable until one or more conditions are fulfilled.

Liability

A financial obligation or debt owed by an individual or company.

Accrual

The accounting method that records revenues and expenses when they are incurred, regardless of when cash transactions occur.