Question

Explain why standard deviation may not be an entirely appropriate measure of risk for purposes of this comparison. ​ (Select the best answer​ below.)

A. The standard deviation measure fails to take into account both the volatility and the return of the investment. Investors would prefer lower return but higher​ volatility, and the coefficient of variation provides a measure that takes into account both aspects of​ investors' preferences.
B. The standard deviation measure fails to take into account both the​ risk-free rate and the return of the investment. Investors would prefer higher return but less​ volatility, and the coefficient of variation provides a measure that takes into account both aspects of​ investors' preferences.
C. The standard deviation measure fails to take into account both the volatility and the return of the investment. Investors would prefer higher return but less​ volatility, and the coefficient of variation provides a measure that takes into account both aspects of​ investors' preferences.
D. The standard deviation measure fails to take into account both the volatility and the​ risk-free rate. Investors would prefer higher return but less​ volatility, and the coefficient of variation provides a measure that takes into account both aspects of​ investors' preferences.

Answer 1

Answer and Explanation

The correct answer is option C

C. The standard deviation measure fails to take into account both the volatility and the return of the investment. Investors would prefer higher return but less​ volatility, and the coefficient of variation provides a measure that takes into account both aspects of​ investors' preferences.