If a financial asset has a historical variance of 4% squared25, then its standard deviation must be 12.56%.

Question

Quizplus · Accepted Answer

The calculation for standard deviation involves taking the square root of variance, so the correct formula is: standard deviation = √(variance). In this case, the square root of 4% squared25 (which means 4% multiplied by itself 25 times) is not equal to 12.56%. The correct calculation is √(4% squared25) = 20%.

If a Financial Asset Has a Historical Variance of 4