Question

The wider the dispersion return on a stock, the:

A) lower the expected rate of return

B) higher the standard deviation

C) lower the real rate of return

D) lower the variance

Answer 1

B) higher the standard deviation

Wider dispersion means higher variability in the return %. This dispersion is actually the spread between the actual return and mean return. Higher this spread, higher is the standard deviation.

Even the formula for standard deviation can be used to understand this relation:

Over here, (X - Xbar)² is actually the respresentation of dispersion and sigma is standard deviation. Standard deviation is hence directly proportional to dispersion.