Which of the Following Statements Is TRUE

question 79

Multiple Choice

Which of the following statements is TRUE?

• A)Portfolios with lower volatility have historically rewarded investors with higher average returns.
• B)Individual stocks with higher volatility have consistently rewarded investors with higher average returns.
• C)Volatility seems to be a reasonable measure of risk when evaluating returns on large portfolios.
• D)Volatility seems to be a reasonable measure of risk when evaluating returns on individual stocks.

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Definitions:

Risk-Free Asset

An investment that is expected to return its principal and interest with near certainty, such as government bonds from stable countries.

Risky Asset

An investment that has a significant degree of uncertainty in its returns.

Asset Allocation

The process of spreading investments among various categories of assets (e.g., stocks, bonds, real estate) to optimize risk and return.

Risk Tolerance

The degree of variability in investment returns that an investor is willing to withstand.