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 statements are correct.

Question

Quizplus · Accepted Answer

The high standard deviation indicates that there is a significant amount of variability in the stock market returns. This means that in some years, the return may be much lower than the average, and therefore, it is likely that an investor may lose money in some years over a 25-year investment period. The high average return does not necessarily mean that an investor will not lose money.

From 1950 to 2007,the Average Return in the Stock Market,as