Which of the following best measures an asset's risk?
A) Expected return
B) The standard deviation
C) The probability distribution
D) The cash return

Question

Quizplus · Accepted Answer

The standard deviation is the most commonly used measure of risk in finance. It measures how much the actual returns of an asset vary from its expected return, providing an indication of the asset's volatility and sensitivity to market movements. The higher the standard deviation, the riskier the asset. A higher expected return does not necessarily mean higher risk, as it could be obtained through relatively stable returns. The probability distribution and cash return are important in determining an asset's overall value, but they do not directly measure its risk.

Which of the Following Best Measures an Asset's Risk