Figure 14-5. On the graph, x represents risk and y represents return.
-Refer to Figure 14-5. Which of the following statements is correct?
A)At point A the standard deviation of the portfolio is 3.
B)A risk averse person always will choose to be at point A.
C)At point D the portfolio consists of about 15 percent stocks and 85 percent safe assets.
D)The figure shows that the greater the risk, the greater the return.

Question

Figure 14-5. On the graph, x represents risk and y represents return. 
-Refer to Figure 14-5. Which of the following statements is correct?
A)At point A the standard deviation of the portfolio is 3. 
B)A risk averse person always will choose to be at point A. 
C)At point D the portfolio consists of about 15 percent stocks and 85 percent safe assets. 
D)The figure shows that the greater the risk, the greater the return.

Quizplus · Accepted Answer

The graph shows a positive relationship between risk and return, indicating that D is correct. Point A represents a portfolio with a lower risk and return than Point C or even Point B, so B is incorrect. There is no information on the standard deviation of the portfolio at Point A, so A is incorrect. The proportion of stocks and safe assets in the portfolio at Point D cannot be accurately determined from the graph, making C incorrect.