Quantitative methods

The expected return of a portfolio is calculated as the weighted average of the expected returns of its component assets, reflecting each asset's proportion in the portfolio. An unweighted average is incorrect because it falsely assumes all assets have equal allocations regardless of their actual investment size.

Standard deviation is a statistical metric that quantifies the amount of variation or dispersion of a set of values around their arithmetic mean. It does not measure central tendency (Option A), which is represented by metrics like the mean or median, nor does it indicate the sample size (Option D).

The time value of money states that a dollar today is worth more than a dollar in the future because of its immediate earning potential through interest. A diagram for this topic isn't available yet — the worked example below walks the same reasoning step by step.

• !Subtracting 10% directly from $100 to get $90 is incorrect because it fails to account for the compounding effect of interest over the period.
• !An unweighted average is incorrect because it falsely assumes all assets have equal allocations regardless of their actual investment size.
• !Option A is incorrect because this metric is not automatically annualized, which would require adjusting the return to a one-year standard.
• !A Type I error is the probability of rejecting a true null hypothesis, while a Type II error is the probability of failing to reject a false null hypothesis.

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