- CFA Exams
- CFA Level I Exam
- Study Session 3. Quantitative Methods (2)
- Reading 9. Excerpt from Probabilistic Approaches: Scenario Analysis, Decision Trees, and Simulations
- Subject 2. Advantages, issues and constraints
CFA Practice Question
Consider two stocks. The result of simulation shows that their expected value are both $20. The standard deviation of Stock A is 15% while that of stock B is 20%. Which statement is true?
B. Stock B is definitely less risky.
C. Stock A is most likely less risky.
A. Stock A is definitely less risky.
B. Stock B is definitely less risky.
C. Stock A is most likely less risky.
Correct Answer: C
It depends on how much of the stock's risk can be diversified away. Stock A may be considered less risky than stock B, but nothing is 100% certain.
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