Figure 27-2.On the graph,x represents risk and y represents return.
-Refer to Figure 27-2.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 27-2.On the graph,x represents risk and y represents return. 
-Refer to Figure 27-2.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 figure shows a positive correlation between risk and return, indicating that the greater the risk, the greater the potential return. Therefore, statement D is correct. Statements A and B are incorrect because point A does not indicate the standard deviation of the portfolio, and a risk averse person may not always choose to be at point A. Statement C is also incorrect because the graph does not provide information about the composition of the portfolio at point D.