Chapter 11, Problem 11.1C

What does variance measure?

Summary Introduction

To discuss: The measures of variance.

Introduction:

Variance refers to the average difference of squared deviations of the actual data from the mean or expected return.

Explanation of Solution

The variance can measure two factors. They are as follows:

• The variances can measure on the spread of investment returns.
• This helps to determine the riskiness of returns of a security.

Conclusion

Variance is the sum of the difference of squared deviations of possible returns and the expected return multiplied by their respective probabilities.