Paper A 1. True or False (5 Scorex4) ()According to Chebyshev\'s inequality, the
ID: 3366509 • Letter: P
Question
Paper A 1. True or False (5 Scorex4) ()According to Chebyshev's inequality, the minimum proportion of observations f negatively skewed distribution is 78%. alling within three standard deviations of the mean (2) Declaring a balance sheet but does not increase shareho1ders' equity. stock dividend increases contributed capital on the (3) Total risk and the var iance of returns refer to the same type of risk. (4) An analyst using a one-period binomial model calculates a probability-weighted average of an opt ion's values fol lowing an up-move or a down-move. According to this model, this average is most likely greater than the option's value today.Explanation / Answer
1. Answer is False
According to Chebyshev’s inequality, the proportion of the observations within 3, which is k, standard deviations of the mean is at least 1 - (1/k^2) = 1 - (1 / 3^2) = 0.89 or 89%. This holds for any distribution, regardless of the shape.
a three standard deviation interval around the mean must contain at least 89% of the observations, no matter how they are distributed.
2. When the stock dividend is distributed to its shareholders, the size of the company's balance sheet stays the same.while there is a redistribution of funds among equity accounts.
3. Thease are least likely refer to the same type of risk.
Unsystematic risk is diversifiable risk. Investors are able to eliminate unsystematic risk by forming diversified portfolios. variance is a measure of total risk.
The variance of returns can be used as a measure of risk if we are evaluating the entire portfolio of investments that an investor has. However, if the investment under consideration is meant to be an addition to an existing portfolio, then the variance of the asset return is not appropriate as a measure of risk of this investment. This is because we are interested primarily in the risk of our entire portfolio, and as far as this new asset is concerned, we would be interested in the incremental risk of the investment. The appropriate measure of the incremental risk of an investment differs from the variance, which is a measure of the total risk of the investment.
4. TRUE, Greater than the option's value today.
The probability-weighted average calculated by the analyst is the option's value after one period. To estimate the option's value today, this result must be discounted by one period.
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