Question

2. Which of the following assets likely has the lowest level of risk (therefore the lowest expected return)?

            A) Long-term government bonds.

            B)   US Treasury bills.

            C)   Long-term corporate bonds.

            D)   Common stock of the small companies listed on NYSE.

Answer 1

Answer is (B) - US Treasury Bill

a) LT bond issued by govt which have slight risk of default. Also, Interest may vary and price of bond will change

B) US Treasury bill has fixed income, hence, rate of return is fixed, so no risk This is also used as risk free interest rate.

C) LT corp bond are riskier. It depends on business of corporate in future and may have high chance of default

d) Common stock is very risky. High volatility on stock price. If company went for bankrup, shareholders will get whatever left after serving bond, creditors, suppliers and preference shareholders - Almost nothing.

Hence asnwer is B