Ace the CMA 2025 Challenge – Unlock Your Accounting Superpowers!

Question: 1 / 430

What does standard deviation measure in investment?

The distance between average and median returns

The likelihood of investment success

The tightness of the distribution and the riskiness of the investment

Standard deviation is a statistical measure that quantifies the amount of variation or dispersion in a set of values. In the context of investments, it specifically measures the volatility of investment returns. A high standard deviation indicates that the returns are spread out over a wider range of values, suggesting that there is a higher level of risk associated with that investment. Conversely, a low standard deviation indicates that the returns are clustered closely around the average, signaling less risk.

This measure is crucial for investors because it provides insight into how much an investment's return might deviate from its expected return. Understanding the tightness of the distribution of returns aids investors in assessing potential risk; therefore, it is a fundamental concept when evaluating the riskiness of an investment portfolio.

Get further explanation with Examzify DeepDiveBeta

The age of an investment

Next Question

Report this question

Download Ace the CMA 2025 Challenge – Unlock Your Accounting Superpowers! PDF Study Guide
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy