From 1950 to 2007, the average return in the stock market, as measured by the S&P 500, was 13.2 percent and a standard deviation of 17 percent. Given this information, which of the following statements is correct?
A) With an average return this high, it is unlikely that an investor will lose money in the stock market in the next year or two.
B) With a standard deviation this high, it is likely that an investor will lose money in some years over a 25-year investment period.
C) This investment is not very good since the standard deviation is greater than the average return.
D) All of these choices are correct.

Question

Quizplus · Accepted Answer

The high standard deviation indicates a high level of volatility, meaning that while the average return is positive, investors may experience significant fluctuations, including losses, especially over shorter periods within a long-term investment horizon like 25 years.

From 1950 to 2007, the Average Return in the Stock