CISI International Certificate in Wealth & Investment Management ICWIM Question # 51 Topic 6 Discussion
ICWIM Exam Topic 6 Question 51 Discussion:
Question #: 51
Topic #: 6
You are analysing two similar funds, A and B, which have similar returns. However, you notice Fund B has a much higher standard deviation than Fund A. This implies that:
A.
Fund A has taken much higher risks
B.
Fund B is significantly more profitable than Fund A
Standard deviation measures the volatility of returns. A higher standard deviation means higher risk.
Key Concept:
Fund A (Lower Standard Deviation) = Lower Risk.
Fund B (Higher Standard Deviation) = Higher Risk.
Risk-Return Tradeoff: Fund B may not necessarily be more profitable, but it is riskier.
???? Reference: CFA Institute (Risk Metrics), CISI Wealth & Investment Management.
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