Figure 9-5. On the graph, x represents risk and y represents return.

-Refer to Figure 9-5. 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 9-5. On the graph, x represents risk and y represents return.
 
-Refer to Figure 9-5. 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

From the graph, it can be observed that as the risk (x-axis) increases, the return (y-axis) also increases. Therefore, statement D is correct. Statements A and B are incorrect because the standard deviation cannot be precisely determined from the graph, and risk-averse individuals may choose different points depending on their risk tolerance. Statement C is also incorrect since the actual portfolio composition cannot be determined from the graph.