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, the one with the lowest risk last?

Question

Quizplus · Accepted Answer

The ranking of investments from highest to lowest risk (and return) based on the given information is as follows:
1. Small-company stocks
2. Large-company stocks
3. Long-term corporate bonds
4. Long-term government bonds
5. Treasury bills
Option C correctly ranks the investments in this order. Option A and B have incorrect rankings of some of the investments. Option D has the correct order for the first two investments, but the order of the remaining investments is incorrect.

Over the Past 75 Years, We Have Observed That Investments