CFA Level I · CFA Level I Exam · Portfolio Risk and Return: Part I
An asset's returns over four years were 10%, 4%, 12% and 6%. Using the sample formula, the standard deviation of returns is closest to:
The mean return is 8%, and the squared deviations sum to 40. Dividing by n minus 1 (3) gives a variance of 13.33, and the square root is about 3.65%, so the sample standard deviation is closest to 3.7%.
- A3.5%
- B3.7%
- C4.3%Correct
Explanation
Mean = 32/4 = 8%. Deviations: 2, -4, 4, -2; squares: 4, 16, 16, 4 = 40. Sample variance = 40/3 = 13.33; standard deviation = 3.65%, closest to 3.7%. Dividing by n gives 10 and 3.16%, which is not offered; 4.3% is not correct either. Correct key is B.
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