In quantitative risk management, which risk metric measures: (1) Total risk (volatility of returns around mean), (2) Systematic market risk of equity, and (3) Sensitivity of bond prices to interest rate changes?

[ A ](1) Book Value per share, (2) Dividend Payout Ratio, (3) Current Ratio

[ B ](1) Standard Deviation, (2) Beta, (3) Modified Duration[ CORRECT ]

[ C ](1) Price-to-Earnings Ratio, (2) Net Profit Margin, (3) Cash Reserve Ratio

[ D ](1) Face Value, (2) Authorised Share Capital, (3) Statutory Liquidity Ratio

Takeaway

Option B is correct: (1) Standard Deviation, (2) Beta, (3) Modified Duration

Derivation

Risk measurement employs specific statistical and sensitivity tools: (1) Standard Deviation measures total dispersion of an asset's periodic returns around its historical mean, capturing total volatility (both systematic and unsystematic). (2) Beta (from CAPM) measures the systematic, non-diversifiable risk of an equity stock relative to a diversified market index. (3) Modified Duration measures the percentage sensitivity of a fixed-income bond's price to small shifts in benchmark market interest rates. This tests quantitative risk metrics. The common trap is confusing valuation and liquidity accounting ratios with statistical risk parameters.

Why the others fail

A — (1) Book Value per share, (2) Dividend Payout Ratio, (3) Current Ratio

Book value, dividend payout, and current ratio are fundamental accounting ratios, not statistical measures of return dispersion or sensitivity.

C — (1) Price-to-Earnings Ratio, (2) Net Profit Margin, (3) Cash Reserve Ratio

P/E ratio, net profit margin, and CRR represent valuation, profitability, and monetary policy tools, not risk volatility metrics.

D — (1) Face Value, (2) Authorised Share Capital, (3) Statutory Liquidity Ratio

Face value and authorized capital are legal share capital parameters, having no mathematical function in measuring return volatility.