CFA Level I · CFA Level I Exam · Statistical Characteristics of Asset Returns
A portfolio has monthly returns of 2%, 4%, 6%, 8% and 10%. Treating these as a sample, the sample standard deviation is closest to:
The sample standard deviation is about 3.16%. The mean is 6%, the squared deviations sum to 40, and dividing by n minus 1 (4) gives a variance of 10, whose square root is 3.16%. Dividing by n would wrongly give 2.83%.
- A2.83%
- B3.16%Correct
- C4.00%
Explanation
Mean = 6%. Squared deviations: 16, 4, 0, 4, 16 = 40. Sample variance = 40/4 = 10, so standard deviation = 3.16%. Dividing by n = 5 gives variance 8 and 2.83%, the population figure, which is the distractor.
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