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CFA Level I · CFA Level I Exam · Statistical Distributions for Financial Asset Prices and Returns

Compared with the standard normal distribution, a Student's t-distribution with 10 degrees of freedom is most accurately described as having:

The t-distribution with few degrees of freedom has fatter tails and a lower peak than the standard normal. It remains symmetric around zero. The heavier tails reflect added uncertainty from estimating the population standard deviation with the sample standard deviation.

  1. Aa skewed shape with a long right tail
  2. Bthinner tails and a higher peak at zero
  3. Cfatter tails and a lower peak at zeroCorrect

Explanation

The t-distribution is symmetric and bell-shaped like the normal but has fatter tails and a lower peak. This reflects the extra uncertainty from estimating the standard deviation. Thinner tails would describe a distribution more concentrated than the normal, which is wrong. A right skew describes the chi-square, not the t.

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