Which of the following sequences is arranged in the correct order, from highest long-term returns to lowest?
A) Small stocks, government bonds, large stocks
B) Large stocks, treasury bills, small stocks
C) Small stocks, large stocks, treasury bills
D) Government bonds, large stocks, treasury bills
Investments that have earned the highest rates of return over time also have
A) the lowest risk.
B) the highest standard deviation of returns.
C) the largest market capitalization.
D) the least sensitivity to inflation.
The difference between returns on stocks and government bonds is known as
A) the equity risk premium.
B) the risk and return tradeoff.
C) the maturity premium.
D) the risk/reward paradox.
An emerging market is
A) a market for small, but rapidly growing companies.
B) market for companies coming out from bankruptcy proceedings.
C) market for promising, but untested technologies.
D) a market located in an economy with low to middle per capita income.
The risk-return tradeoff tells us that expected returns should be higher on investments that have higher risk.
Answer: TRUE
Riskier investments have traditionally had lower returns than less risky investments have had.
Answer: FALSE
Less risky investments have lower standard deviations than do more risky investments.
Answer: TRUE
Investments in emerging markets have higher volatility than do U.S. Stocks.
Answer: TRUE
Risky investments have the potential for higher returns, but also larger losses.
Answer: TRUE
Historically, in the United States stocks have had higher returns and greater volatility than have government bonds.
Answer: TRUE
Treasury Bills have less default risk than do Government Bonds.
Answer: TRUE
Investors are always rewarded for taking higher risk with higher realized returns.
Answer: FALSE
During the financial crisis of 2007-2009, returns on real estate investment trusts (REITS) and stocks moved in opposite directions.
Answer: FALSE
