Over the past 88 years,we have observed 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?

Question

Quizplus · Accepted Answer

The question asks us to rank investments from highest to lowest risk (and return) and the provided observation suggests that high returns are associated with high risk. Therefore, small-company stocks, which are known to be riskier than large-company stocks, should be first on the list. Large-company stocks follow because they are less risky than small-company stocks but still have a high potential return. Long-term corporate bonds come next because they are less risky than stocks but still have a higher risk and return profile than long-term government bonds. Long-term government bonds follow because they are less risky than corporate bonds but still offer a higher return than U.S. Treasury bills, which are the least risky of all the investments listed. Therefore, the correct order is: Small-company stocks, large-company stocks, long-term corporate bonds, long-term government bonds, U.S. Treasury bills. The only answer choice that correctly reflects this sequence is C.

Over the Past 88 Years,we Have Observed That Investments with the Highest