Rank the following asset classes in terms of risk, from highest risk to lowest risk: I. Bonds
II. Individual stocks
III. 500 Index
IV. Certificates of deposit
A)IV, II, III, I
B)II, III, I, IV
C)II, I, III, IV
D)II, IV, III, I

Question

Rank the following asset classes in terms of risk, from highest risk to lowest risk: I. Bonds
II. Individual stocks
III.  500 Index
IV. Certificates of deposit
A)IV, II, III, I 
B)II, III, I, IV 
C)II, I, III, IV 
D)II, IV, III, I

Quizplus · Accepted Answer

Stocks have higher risk than bonds, but the S&P 500 Index is comprised of many large, established companies which can make it less risky than individual stocks. Certificates of deposit are typically the lowest risk asset class. Individual stocks have the highest risk due to their volatility and potential for significant price fluctuations. The S&P 500 Index is a diversified portfolio of 500 large-cap stocks, which lowers the overall risk compared to individual stocks but still carries risk due to market fluctuations. Bonds generally have a lower risk than stocks and the S&P 500 Index, but still carry some risk depending on the type of bond and issuer. Certificates of deposit have the lowest risk due to their FDIC insurance and fixed interest rate. Therefore, the correct order from highest risk to lowest risk is II, III, I, IV, and choice B is the best answer.

Rank the Following Asset Classes in Terms of Risk, from Highest