Which of the Following Explains the Computation of Return Variance

question 5

Multiple Choice

Which of the following explains the computation of return variance in the correct chronological order?

• A)Compute demeaned returns,take the probability-weighted average of the demeaned returns and square the resulting number
• B)Compute demeaned returns,square the demeaned returns and take the probability-weighted average of these squared numbers
• C)Compute demeaned returns and take the probability-weighted average of these squared numbers
• D)Compute demeaned returns,square the demeaned returns,take the probability-weighted average of these squared numbers and take square root of the resulting number

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Definitions:

Capital Lease

A lease agreement that is considered a purchase of an asset for accounting purposes, with the lessee assuming both the benefits and risks of ownership.

Interest Expense

The cost incurred by an entity for borrowed funds, calculated as the principal times the interest rate over a period.

Residual Value

The estimated value that an asset will have at the end of its useful life, often used in calculating depreciation.

Capital Lease

A type of long-term lease agreement in which the lessee essentially buys an asset and pays for it over the lease term, with the asset's ownership potentially transferring to the lessee at the lease's end.