Mastering Standard Deviation for Financial Analysis

This video tutorial from the Boston Institute of Finance explains the concept of standard deviation and its role in understanding the normal distribution, also known as the bell curve. It covers how probabilities are distributed and the significance of standard deviation as a measuring tool. The tutorial highlights key percentages associated with standard deviations and provides an example of applying these concepts to a CFP exam question, specifically focusing on stock returns and expected outcomes.

What does the mean represent in a normal distribution curve?

• The average value

• The mode value

• The lowest value

• The highest value

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What does the total area under the normal distribution curve represent?

• 95%

• 68%

• 100%

• 50%

How is the standard deviation used in the context of the normal distribution?

• To identify the curve's symmetry

• To calculate the curve's total area

• To measure the curve's peak height

• To determine the spread of data around the mean

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What percentage of data falls within one standard deviation from the mean in a normal distribution?

• 99.7%

• 95%

• 68%

• 50%

How much data is captured between one and two standard deviations from the mean?

• 2%

• 14%

• 95%

• 68%

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What is the total percentage of data within three standard deviations from the mean?

• 100%

• 95%

• 68%

• 99.7%

What does a standard deviation of 3% indicate about the stock's return?

• It is less volatile

• It has a high probability of losing value

• It guarantees a 3% return

• It is very volatile

If a stock has an average return of 7% and a standard deviation of 3%, what is the return at 1 standard deviation below the mean?

• 4%

• 7%

• 10%

• 13%

What is the expected return range for the stock at two standard deviations above the mean?

• 4% to 7%

• 7% to 10%

• 10% to 13%

• 13% to 16%

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What percentage of the time should an investor expect a return of 4% or more from the stock?

• 99.7%

• 95%

• 84%

• 68%

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