Which one of the following accurately orders the rate of return on financial securities from highest to lowest over most of recorded market history (the 1928-2013 period)?
A) Short-term government bills,long-term corporate bonds,long-term government bonds,common stocks
B) Long-term corporate bonds,long-term government bonds,common stocks,short-term government bills
C) Common stocks,long-term government bonds,long-term corporate bonds,short-term government bills
D) Common stocks,long-term corporate bonds,long-term government bonds,short-term government bills
E) Long-term corporate bonds,common stocks,short-term government bills,long-term government bonds

Question

Quizplus · Accepted Answer

This order is commonly known as the "risk premium" hierarchy, and is based on the idea that securities that carry more risk (such as stocks) should offer higher returns than those with less risk (such as government bonds). Therefore, common stocks have historically provided the highest rate of return, followed by long-term corporate bonds, long-term government bonds, and finally short-term government bills. Choice A and E have the wrong order, and choice B has the correct securities but in the wrong order. Choice C has the correct securities in the correct order but is missing the long-term corporate bonds.

Which One of the Following Accurately Orders the Rate of Return