[tex]\[
\begin{tabular}{|c|l|l|l|}
\hline
Investment & Portfolio 1 & Portfolio 2 & Portfolio 3 \\
\hline
Stock in Large, Old Corporation & \$1,800 & \$2,200 & \$400 \\
\hline
Stock in Emerging Company & \$600 & \$1,200 & \$5,500 \\
\hline
U.S. Treasury Bond & \$1,100 & \$3,500 & \$1,200 \\
\hline
Junk Bond & \$500 & \$1,300 & \$3,000 \\
\hline
Certificate of Deposit & \$1,700 & \$4,200 & \$600 \\
\hline
\end{tabular}
\][/tex]

Which of the following shows the portfolios' levels of risk from lowest to highest?

A. Portfolio 2, portfolio 3, portfolio 1

B. Portfolio 1, portfolio 3, portfolio 2

C. Portfolio 2, portfolio 1, portfolio 3

D. Portfolio 3, portfolio 2, portfolio 1



Answer :

To determine the portfolios' levels of risk from lowest to highest, we analyze the sum of investments within each portfolio. Each portfolio includes investments in stocks, bonds, and deposits, and we discount risk level based on the total value of investments.

First, we calculate the total investment in each portfolio:

Portfolio 1:
- Stock in Large, Old Corporation: [tex]$1,800 - Stock in Emerging Company: $[/tex]600
- U.S. Treasury Bond: [tex]$1,100 - Junk Bond: $[/tex]500
- Certificate of Deposit: [tex]$1,700 Total for Portfolio 1: \[ 1800 + 600 + 1100 + 500 + 1700 = 5700 \] Portfolio 2: - Stock in Large, Old Corporation: $[/tex]2,200
- Stock in Emerging Company: [tex]$1,200 - U.S. Treasury Bond: $[/tex]3,500
- Junk Bond: [tex]$1,300 - Certificate of Deposit: $[/tex]4,200

Total for Portfolio 2:
[tex]\[ 2200 + 1200 + 3500 + 1300 + 4200 = 12400 \][/tex]

Portfolio 3:
- Stock in Large, Old Corporation: [tex]$400 - Stock in Emerging Company: $[/tex]5,500
- U.S. Treasury Bond: [tex]$1,200 - Junk Bond: $[/tex]3,000
- Certificate of Deposit: $600

Total for Portfolio 3:
[tex]\[ 400 + 5500 + 1200 + 3000 + 600 = 10700 \][/tex]

Next, we order the portfolios by their total investment from lowest to highest:

[tex]\[ \text{Portfolio 1: } 5700 \][/tex]
[tex]\[ \text{Portfolio 3: } 10700 \][/tex]
[tex]\[ \text{Portfolio 2: } 12400 \][/tex]

Therefore, the order of portfolios from lowest to highest risk is:

Portfolio 1, Portfolio 3, Portfolio 2

The correct option is:
Portfolio 1, portfolio 3, portfolio 2.