CFA Practice Question

There are 410 practice questions for this study session.

CFA Practice Question

Suppose that four different portfolios have produced the following returns over the past year: 10%, 30%, 5% and 15%.

I. The mean return is 15%.
II. The range is 25%.
III. The mean absolute deviation is 7.5%.
IV. The variance is 0.875%.
V. The standard deviation is 9.354%.

Which statement(s) is (are) FALSE?
A. II and IV only
B. III and V only
C. None of the above
Explanation: All the statements were true and can be computed as follows:

Mean return = (10 + 30 + 5 + 15) / 4 = 15%
Range = 30 - 5 = 25%
Mean absolute deviation (MAD) = [ |10 - 15| + | 30 - 15 | + | 5 - 15 | + | 15 - 15 |] / 4 = 7.5%
Variance s2 = [(10% - 15%)2 + (30% - 15%)2 + (5% - 15%)2 + (15% - 15%)2] / 4 = 0.875%
Standard deviation = (0.875%)0.5 = 9.354%

User Contributed Comments 9

User Comment
Eckhardt1978 but variance is 116,66 and therefore standard deviation is 10,8 %, isn't it? Sum(Ri-R')^2/(n-1)
Eckhardt1978 ok, i'm false. it's a sample so divided by n and not by n-1.
tenny45 If st.dev is 9.354, then variance is 9.354^2 = 87.5.
shayu It's just a convention for the unit (unit^2). Nothing wrong.
tabulator No, Eckhardt, this is population; therefore divide by n (in this case 4).
achu A minor aside is that, since this is a POPULATION as tabulator mentions, it should be sigma^2, not s^2.
panvino Why is this a population? I'm lost!
NickPash Since it take smore than 1.5 min. Use POE, You know choice 2 is coreect without any calculation, so A is correct. Now check MAD, Mad is correct. Therefore, answer must be C.
soukhov good way for calculation stdev for population on calc, is adding one more number from a row, use 10% 30% 5% 15% 15% for example
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