Question

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.

Answer 1

Answer:B. The portfolio of smaller stock are typically less volatile than individual small stock.

C. On average smaller stock have lower return than larger stock.

Step-by-step explanation:

The larger stock most times have a higher volatility than smaller stock and usually have better records of performance, this therefore makes their returns higher than lower stock.

On an average the volatility of a smaller stock is greater than that of a portfolio of smaller stock for the portfolio stock will compensate for one another to limit the volatility.

A treasury bill has a government guarantee, their return is therefore lower and same applies to their volatility when compared to smaller stock.