Question

Assuming investors are risk-averse on average, what would you expect the order to be if you ordered the assets by expected return (from lowest to highest) instead? (note: expected return is just the expected value of the return).

1. Apple Stock

2. US government bond with maturity of 10-years

3. Apple preferred stock

4. Corporate bond with maturity of 10-years issued by Apple

5. 3-month T-bill

Answer 1

Answer: Lets first list down the expected return that we have seen in the options in the current

1. 3 Month T- bill current expected return is around 2.37%

2. US Government 10 year Bond expected return is 2.65%

3.. Corporate bond with maturity of 10 yrs issued by Apple would be higher than US government 10 year bond reason being more risk than US government bond

4.Apple Stock would give the highest expected return looking at the past trend but would be more risky as well

5. Apple preferred stock would give higher expected return than Corporate Bond but lower than Apple stock

So, Overall if I List down the options in terms of lowest to highest expected return(with out looking at risk) then

1.3 month T bill

2.US 10 year maturity government bond

3.Corporate bond with maturity 10 years issued by Apple

4.Apple Preferred stock

5.Apple Stock