1.)

When measuring risk and return for different asset classes, the following best describes historical observations

1. Stocks have higher returns, but lower standard deviations than bonds
2. Stocks have higher returns than T-bills, but lower returns than bonds.Stocks have the highest standard deviation of the three asset classes.
3. Stocks have lower returns than bonds and T-bills, but they make up for this with higher standard deviation.
4. Stocks have higher returns and higher standard deviations than bonds.

2.)

Diversification is an important concept in characterizing risk and return.Which of the following best defines what diversification is?

A.) The process of putting money in different types of investments for the purpose of reducing the overall risk of the portfolio

B.) The process of selecting different investments with the strongest correlation for the purpose of maximixing returns in the portfoio

C.) The process of selecting the right mix between risk-free and risky assets

D.) The process of analyzing historical average returns for different investments.