Which of the following portfolios has the least risk?Group of answer choicesA portfolio of U.S. common stocks of large firmsA portfolio of Treasury billsA portfolio of U.S. common stocks of small firmsA portfolio of long-term U.S. government bonds
Question
Which of the following portfolios has the least risk?Group of answer choicesA portfolio of U.S. common stocks of large firmsA portfolio of Treasury billsA portfolio of U.S. common stocks of small firmsA portfolio of long-term U.S. government bonds
Solution
The portfolio with the least risk is a portfolio of Treasury bills. This is because Treasury bills are backed by the full faith and credit of the U.S. government, making them virtually risk-free. On the other hand, stocks (whether of large or small firms) carry a higher level of risk due to market volatility. Long-term government bonds, while safer than stocks, still carry more risk than Treasury bills due to the longer time horizon and the potential for interest rate changes.
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