In 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

Historically, small-company stocks have shown higher returns but also higher risk compared to large-company stocks. Long-term corporate bonds generally exhibit more risk and potential return than government bonds, with U.S. Treasury bills being the least risky and thus offering the lowest returns. This ranking aligns with the established relationship between risk and return.

In Historical Data, We See That Investments with the Highest