Over the past 75 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 options correctly ranks investments from highest to lowest risk (and return),where the security with the highest risk is shown first,and the one with the lowest risk last?

Question

Quizplus · Accepted Answer

The ranking of investments from highest to lowest risk and return would be small-company stocks, large-company stocks, long-term corporate bonds, long-term government bonds, and Treasury bills. This is in line with the observation that investments with the highest average annual returns (small and large company stocks) also have the highest standard deviations of annual returns, indicating higher risk. Long-term corporate bonds have slightly lower risk compared to stocks but still have higher risk compared to long-term government bonds and Treasury bills, which are considered safer investments with lower returns. Option A and B have some incorrect orderings. Option D has the correct order of small and large company stocks, but the order of bonds and Treasury bills is incorrect.

Over the Past 75 Years,we Have Observed That Investments with the Highest