Over the past 89 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 ranking of investments based on highest to lowest risk and return should follow the observation that investments with higher average annual returns have higher standard deviations of annual returns. Small-company stocks have historically had the highest average returns and highest standard deviations, followed by large-company stocks, long-term corporate bonds, long-term government bonds, and U.S. Treasury bills with the lowest returns and lowest standard deviations. Hence, the correct ranking should be Small-company stocks, Large-company stocks, Long-term corporate bonds, Long-term government bonds, and U.S. Treasury bills. Option C is the only option that lists the investments in this order.

Over the Past 89 Years,we Have Observed That Investments with the Highest