CFA Practice Question

There are 208 practice questions for this study session.

CFA Practice Question

Which statement is correct?
A. A random walk has a finite variance but no finite mean.
B. A random walk has a finite mean but no finite variance.
C. A random walk has no finite mean or finite variance.
Explanation: Since b0 = 0 and b1 = 1, the meant-reverting level of a random walk is b0/(1-b1) = 0/0. Therefore its mean is not defined.

The variance of xt is (t - 1) σ2 so there is no upper bound as t grows large.

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