Investing: Risk Metrics Quiz

What does standard deviation measure in investing?

• The average return of an investment

• The risk-free rate of return

• The volatility of an investment’s returns over time

• The total return of an investment

A higher standard deviation in an investment typically indicates:

• Lower risk and lower potential returns

• Higher risk and potentially higher returns

• A guaranteed return on investment

• A fixed rate of return

If a stock’s returns have a standard deviation of zero, what does this mean?

• The stock has high volatility

• The stock has consistent returns with no variation

• The stock has a negative return

• The stock is uncorrelated with the market

What does beta measure in relation to an investment?

• The average return of a stock

• The correlation between a stock and the market

• The past dividend payments of a stock

• The risk-free rate of return

A stock with a beta of 1.5 means:

• It is 50% less volatile than the market

• It moves independently of the market

• It is 50% more volatile than the market

• It has no correlation with the market

If a stock has a beta of 0.5, how is it expected to move compared to the overall market?

• It will move in the opposite direction of the market

• It will be more volatile than the market

• It will move in the same direction as the market but with lower volatility

• It has no correlation with the market

What is the primary use of beta when analyzing an investment?

• To determine the future price of a stock

• To assess the risk level compared to the market

• To calculate the dividend yield

• To find the intrinsic value of a company

If a stock had annual returns of 8%, 10%, and 6% over three years, what is the average return?

• 6%

• 8%

• 10%

• 24%

What does CAGR (Compound Annual Growth Rate) measure?

• The total return of an investment over a period

• The simple average of annual returns

• The annualized return considering compounding effects

• The dividend growth rate of a stock

Why is CAGR often preferred over average return in performance analysis?

• It ignores volatility in annual returns

• It accounts for compounding, providing a more accurate long-term measure

• It always results in a higher return calculation

• It only applies to stock investments