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CISI ICWIM Free Sample | ICWIM Test Pattern

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CISI International Certificate in Wealth & Investment Management Sample Questions (Q132-Q137):

NEW QUESTION # 132
Why should standard deviation, as a measure of volatility, not be used on its own?

• A. Because it cannot be used to compare all assets
• B. The data is historic
• C. Standard deviation only works for small fluctuations
• D. Because the data is difficult to interpret

Answer: B

Explanation:
Standard deviation is a widely used measure of volatility, but it has a significant limitation: it is based on past data, which may not reflect future risks.
* Key Limitations of Standard Deviation:
* It only measures historical price fluctuations, not future risks.
* It assumes normal distribution, which may not hold in financial markets.
* It does not distinguish between upside and downside volatility.
* Alternative Measures of Risk:
* Value at Risk (VaR) - Estimates potential losses under extreme market conditions.
* Beta - Measures risk relative to the overall market.
* Sharpe Ratio - Assesses risk-adjusted returns.
# Reference: CFA Institute (Risk Metrics), CISI Wealth & Investment Management.

NEW QUESTION # 133
How does standard deviation provide investors with a measure of historical volatility?

• A. Through the measurement of share price movements compared to the benchmark
• B. By the analysis of historical share price movements
• C. By measuring the degree of fluctuation around the mean
• D. Through the measurement of the highs and lows of each asset

Answer: C

Explanation:
Standard deviation measures the dispersion of returns around the average (mean) return. A higher standard deviation indicates greater historical volatility, showing how much the returns deviate from the expected average.
Formula:
Standard Deviation=#(Ri#R#)2n ext{Standard Deviation} = sqrt{rac{Sigma (R_i - ar{R})