The correct answer is B. Larger standard deviation indicates greater chance of lower actual return than expected return and greater variation.
Standard deviation is a measure of how spread out numbers are in a set. A low standard deviation indicates that the numbers are very close to the average, while a high standard deviation indicates that the numbers are spread out over a large range.
In the context of investment returns, a higher standard deviation indicates that there is a greater chance of lower actual returns than expected returns. This is because a higher standard deviation indicates that the returns are more volatile, or more likely to vary from the average.
For example, let’s say you are considering investing in two different stocks. Stock A has a standard deviation of 10%, while Stock B has a standard deviation of 20%. This means that Stock A is less likely to have returns that are significantly lower than the expected return, while Stock B is more likely to have returns that are significantly lower than the expected return.
In general, investors are willing to accept higher risk in exchange for the potential for higher returns. However, it is important to understand that higher risk also means a greater chance of lower returns. Investors should carefully consider their risk tolerance before investing in any security.