Question

The variance of an investment's returns is a measure of the: A) volatility of the rates...

The variance of an investment's returns is a measure of the:

A) volatility of the rates of return

B) Probability of a negative return

C) historic return over long time periods

D) average value of the investment

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Answer #1

A) Volatility of rates of return

Variance is a measurement of the spread between the return numbers. The variance measures how far each number in the set is from the mean.

Variance is a measure of the variability (volatility) from an average and volatility is a measure of risk, the variance statistic can help determine the risk an investor might take on when purchasing a specific security. A variance value of zero indicates that all values within a set of numbers are identical; all variances that are non-zero will be positive numbers. A large variance indicates that numbers in the set are far from the mean and each other, while a small variance indicates the opposite.

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