Question

F the statement is correct, insert "TRUE" at the end of the sentence. Otherwise insert "FALSE." Use CAPITALS for your answer.

a) Investors who are risk-averse will invest in securities with a low standard deviation.
b) The standard deviation is one of the best measures an asset's expected return?

Answer 1

Option a) is TRUE because risk-averse investors prefer to invest in securities with a low standard deviation. Option b) is FALSE because the standard deviation is not one of the best measures for an asset's expected return.

Step-by-step explanation:

The statement in option a) is TRUE. Risk-averse investors prefer to invest in securities with a low standard deviation because it indicates less volatility or variability in the returns. A low standard deviation implies a more stable and predictable investment, which aligns with the risk aversion of these investors.

The statement in option b) is FALSE. While the standard deviation is a measure of the dispersion of returns, it is not considered one of the best measures for an asset's expected return. The expected return is better measured using metrics like the average return or the yield. Standard deviation is more commonly used as a measure of risk.