Consider the risk-return relationship in T-bills during each decade since 1950. Given this data, which of the following statements is correct? $$\begin{array} { | c | c | }
\hline \text { Decade } & \text { CoV } \
\hline 1950 \mathrm {~s} & 0.40 \
\hline 1960 \mathrm {~s} & 0.33 \
\hline 1970 \mathrm {~s} & 0.29 \
\hline 1980 \mathrm {~s} & 0.29 \
\hline 1990 \mathrm {~s} & 0.24 \
\hline 2000 \mathrm {~s} & 0.55 \
\hline
\end{array}$$
A)The best risk-return relationship was during the 1950s.
B)The best risk-return relationship was during the 1990s.
C)Since T-bills is backed by the full faith of the U.S. government, computing the risk-return relationship for them is invalid.
D)None of these statements are correct.

Question

Consider the risk-return relationship in T-bills during each decade since 1950. Given this data, which of the following statements is correct? $$\begin{array} { | c | c | } 
\hline \text { Decade } & \text { CoV } \
\hline 1950 \mathrm {~s} & 0.40 \
\hline 1960 \mathrm {~s} & 0.33 \
\hline 1970 \mathrm {~s} & 0.29 \
\hline 1980 \mathrm {~s} & 0.29 \
\hline 1990 \mathrm {~s} & 0.24 \
\hline 2000 \mathrm {~s} & 0.55 \
\hline
\end{array}$$
A)The best risk-return relationship was during the 1950s.
B)The best risk-return relationship was during the 1990s.
C)Since T-bills is backed by the full faith of the U.S. government, computing the risk-return relationship for them is invalid.
D)None of these statements are correct.

Quizplus · Accepted Answer

The lower the coefficient of variation (CoV), the better the risk-return relationship. Based on the given data, the CoV was the lowest in the 1990s, which implies that this decade had the best risk-return relationship. The risk-return relationship was not the best in the 1950s because the CoV was higher than that of the 1990s. Choice C is incorrect because computing the risk-return relationship for T-bills is a valid approach, and the CoV provides useful information for investors. Therefore, the correct answer is B.

Consider the Risk-Return Relationship in T-Bills During Each Decade Since