Which of the following securities is most unlikely to have a symmetrical return distribution, making the use of RiskMetrics model inappropriate?
A)Common stock.
B)Preferred stock.
C)Option contracts.
D)Consol bonds.
E)30-year U.S.Treasury bonds.

Question

Quizplus · Accepted Answer

Option contracts have non-linear payoffs and therefore do not have a symmetrical return distribution, making RiskMetrics model inappropriate for calculating risk. Common stock, preferred stock, and bonds have relatively symmetrical return distributions and can be measured using RiskMetrics. 30-year U.S. Treasury bonds have a slightly negatively skewed distribution due to their low interest rate risk and increasing demand in times of market stress, but can still be measured using RiskMetrics.

Which of the Following Securities Is Most Unlikely to Have