The variance of returns for a portfolio of stocks is computed by dividing the sum of the
A)squared deviations by (the number of returns minus one).
B)average returns by (the number of returns minus one).
C)average returns by (the number of returns plus one).
D)squared deviations by the average rate of return.
E)squared deviations by (the number of returns plus one).

Question

Quizplus · Accepted Answer

The variance of returns for a portfolio of stocks is computed by dividing the sum of the squared deviations by (the number of returns minus one). This is known as the sample variance formula, which is used to estimate the variance of a population. Using the number of returns minus one in the denominator corrects for the bias that would otherwise be introduced into the estimate of the variance.

The Variance of Returns for a Portfolio of Stocks Is