An investment with a large spread between possible payoffs will generally have:
A) a low expected return.
B) a high standard deviation.
C) a low value at risk.
D) both a low expected return and a low value at risk.

Question

Quizplus · Accepted Answer

A large spread between possible payoffs indicates that there is a high degree of uncertainty or variability in the potential outcomes of the investment. This corresponds to a high standard deviation, which measures the degree of variability or dispersion of returns around the expected value. Thus, choice B is the best answer. Option A and D are incorrect because a high degree of uncertainty does not necessarily imply a low expected return, as some high-risk/high-return investments may have a higher expected return than low-risk/low-return investments. Option C is incorrect because a low value at risk implies that there is a low probability of experiencing large losses in the investment, which may not be the case for high-risk investments with large spreads between possible payoffs.

An Investment with a Large Spread Between Possible Payoffs Will