Which of the following statements is TRUE?
A) On average, smaller stocks have lower volatility than Treasury bills.
B) Portfolios of smaller stocks are typically less volatile than individual small stocks.
C) On average, smaller stocks have lower returns than larger stocks.
D) On average, Treasury bills have higher returns than stocks.

Question

Quizplus · Accepted Answer

While smaller individual stocks may be more volatile, portfolios of smaller stocks are typically less volatile as diversification reduces risk. Option A is false, as smaller stocks are typically more volatile than Treasury bills. Option C is false, as smaller stocks generally have higher returns than larger stocks. Option D is false, as Treasury bills have lower returns than stocks but are less risky.

Which of the Following Statements Is TRUE