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The standard deviation of a stock’s return is a measure of its:Group of answer choicesexpected future returncorrelationsystematic risktotal risk

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Solution

The standard deviation of a stock’s return is a measure of its total risk.

Here's why:

  1. Standard deviation is a statistical measure that reflects the amount of variability or dispersion around an average.

  2. In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility, or risk.

  3. Therefore, the standard deviation of a stock's return measures how much the return on the stock is deviating from the expected normal or average returns.

  4. High standard deviation means the returns are spread out over a large range of values. This means the price of the stock can change dramatically in a very short time, making it possible for investors to experience significant gains or losses.

  5. Hence, it is a measure of total risk because it takes into account both systematic risk (market risk) and unsystematic risk (specific to individual stocks).

  6. It does not measure expected future return or correlation. Expected future return is a prediction based on historical data or analysis, and correlation refers to how changes in one variable are associated with changes in another.

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