Can someone help shed some light on why the below question is being configured using sample standard deviation (5-1) in the denominator, as opposed to (5) in the denominator? The question is on pg. 155 #3 in the schweser text. I’m not sure why we are using sample standard deviation here…
In a 5-year period, the annual returns on an investment are 5%, -3%, -4%, 2%, and 6%. The standard deviation of annual returns on this investment is closest to:
A. 4%
B. 4.5%
C. 20.7%
Answer is B.
Because you have a sample, not a population. In any moment the question says it is a population. Logically I can argue that since an investment could have many more years than only 5y (future or past) and the question does not specify it is a population the only common guess could be to use sample standard deviation.
I guess the words “in a five year period” implies that it’s total investment (population) is longer, but i still don’t like the wording…I appreciate your response though. I’ll have to change my way of thinking on this.
You don’t have to change your thinking; the questions on the real exam will be clear.
Often prep provider questions are less clear.
That makes me feel a bit better. I’ve argued with some of the Schweser guys over wording and usually end up frustrating myself. It’s bad enough memorizing and learning everything, that changing your way of thinking would just cause more stress. Thanks S2000magician
My pleasure.