Asked by Joselyne Saldaña Gonzalez on May 03, 2024
Verified
Amanda talks with several different brokers at a social gathering. She hears the following advice from brokers A, B, and C. Which broker, if any, gave her incorrect advice?
A) Broker A: "There are risks in holding stocks, even in a highly diversified portfolio."
B) Broker B: "Portfolios with smaller standard deviations have lower risk."
C) Broker C: "Stocks with greater risks offer lower average returns."
D) They all gave her correct advice.
Diversified Portfolio
An investment strategy that involves holding a range of different investment vehicles in order to reduce risk.
Standard Deviations
A measure of the amount of variation or dispersion of a set of values, used in statistics to quantify the spread of a data set.
Average Returns
The mean amount of profit or loss generated by an investment or portfolio over a specified period.
- Pinpoint the contributing factors to market risk and assess their repercussions on investment portfolios.
- Analyze and distinguish between diverse investment alternatives by assessing their profiles in terms of risk and potential returns.
Verified Answer
ZK
Zybrea KnightMay 05, 2024
Final Answer :
C
Explanation :
Broker C's advice is incorrect because, generally, stocks with greater risks are expected to offer higher average returns to compensate investors for taking on more risk. This principle is a fundamental concept in finance known as the risk-return tradeoff.
Learning Objectives
- Pinpoint the contributing factors to market risk and assess their repercussions on investment portfolios.
- Analyze and distinguish between diverse investment alternatives by assessing their profiles in terms of risk and potential returns.