What assumption about risk-adjusted techniques for measuring performance poses a potential problem? A. Portfolio risk is constant overtime B. Returns are normally distributed C. Mean reversion D. None of the options are correct E. Lognormal outcome of prices

What assumption about risk-adjusted techniques for measuring performance poses a potential problem? A. Portfolio risk is constant overtime B. Returns are normally distributed C. Mean reversion D. None of the options are correct E. Lognormal outcome of prices

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 1Q

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Concept explainers

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.

Question

What assumption about risk-adjusted techniques for measuring performance poses a potential problem?

A. Portfolio risk is constant overtime

B. Returns are normally distributed

C. Mean reversion

D. None of the options are correct

E. Lognormal outcome of prices

Features Features Normal distribution is characterized by two parameters, mean (µ) and standard deviation (σ). When graphed, the mean represents the center of the bell curve and the graph is perfectly symmetric about the center. The mean, median, and mode are all equal for a normal distribution. The standard deviation measures the data's spread from the center. The higher the standard deviation, the more the data is spread out and the flatter the bell curve looks. Variance is another commonly used measure of the spread of the distribution and is equal to the square of the standard deviation.

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