historical data, we see that investments with the highest average annual returns also tend to have the highest standard deviations of annual returns This observation supports the notion that there is a positive correlation between risk and return Which of the following answers correctly ranks investments from highest to lowest risk (and return), where the security with the highest risk is shown first, the one with the lowest risk last?
A) Large-company stocks, small-company stocks, long-term corporate bonds, U.S. Treasury bills, long-term government bonds.
B) Small-company stocks, large-company stocks, long-term corporate bonds, long-term government bonds, U.S. Treasury bills.
C) U.S. Treasury bills, long-term government bonds, long-term corporate bonds, small-company stocks, large-company stocks.
D) Large-company stocks, small-company stocks, long-term corporate bonds, long-term government bonds, U.S. Treasury bills.
E) Small-company stocks, long-term corporate bonds, large-company stocks, long-term government bonds, U.S. Treasury bills.

Question

Quizplus · Accepted Answer

The ranking of investments from highest to lowest risk (and return) is:
1. Small-company stocks
2. Large-company stocks
3. Long-term corporate bonds
4. Long-term government bonds
5. U.S. Treasury bills. This ranking is based on the observation that investments with higher standard deviations of returns tend to offer higher average annual returns but also higher risk, and small-company stocks have historically exhibited the highest standard deviation of returns among the options listed, while U.S. Treasury bills have had the lowest.

Historical Data, We See That Investments with the Highest Average