Final answer:
A portfolio that includes both the S&P 500 and the EAFE indices is likely to yield higher returns with lower risk compared to one that contains only the S&P 500, due to the benefits of diversification. Thus, the option c is the correct answer.
Step-by-step explanation:
Over the long term, a portfolio consisting of an S&P 500 index and an EAFE index will generally produce higher returns and have lower risk than a portfolio comprised solely of the S&P 500 index. The correct answer is C) Higher returns, lower risk. This is due to the benefit of diversification, which helps to spread risk across different markets and types of investments. Including the EAFE index, which consists of international stocks, introduces different economic and market dynamics that can balance the portfolio. Also, it's important to remember that higher risk does not necessarily equate to lower returns; actually, it has to potentially offer higher returns to be attractive to investors. Having a diversified portfolio can maximize returns while minimizing risk due to varying performance across different markets and asset classes.