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\begin{tabular}{|l|l|l|l|}
\hline \multicolumn{1}{|c|}{ Investment } & Portfolio 1 & Portfolio 2 & Portfolio 3 \\
\hline Stock in Large, Old Corporation & [tex]$\$[/tex] 500[tex]$ & $[/tex]\[tex]$ 2,000$[/tex] & [tex]$\$[/tex] 2,000[tex]$ \\
\hline Stock in Emerging Company & $[/tex]\[tex]$ 5,000$[/tex] & [tex]$\$[/tex] 500[tex]$ & $[/tex]\[tex]$ 1,000$[/tex] \\
\hline U.S. Treasury Bond & [tex]$\$[/tex] 3,000[tex]$ & $[/tex]\[tex]$ 500$[/tex] & [tex]$\$[/tex] 1,000[tex]$ \\
\hline Certificate of Deposit & $[/tex]\[tex]$ 500$[/tex] & [tex]$\$[/tex] 6,000[tex]$ & $[/tex]\[tex]$ 3,000$[/tex] \\
\hline
\end{tabular}

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

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 :

GinnyAnswer
To determine the risk levels of each portfolio, we need to consider the different types of investments and their associated risks. Here, we will analyze the investments and their assumed weights for risk:

1. Stock in Large, Old Corporation: Relatively low risk, assigned a weight of 1.
2. Stock in Emerging Company: Higher risk, assigned a weight of 4.
3. U.S. Treasury Bond: Low risk, assigned a weight of 0.5.
4. Certificate of Deposit (CD): Low risk, assigned a weight of 0.5.

We'll calculate the total risk for each portfolio by multiplying each investment amount by its weight and summing these values.

Portfolio 1:
- Stock in Large, Old Corporation: [tex]\( \$500 \times 1 = \$500 \)[/tex]
- Stock in Emerging Company: [tex]\( \$5,000 \times 4 = \$20,000 \)[/tex]
- U.S. Treasury Bond: [tex]\( \$3,000 \times 0.5 = \$1,500 \)[/tex]
- Certificate of Deposit: [tex]\( \$500 \times 0.5 = \$250 \)[/tex]

Total risk for Portfolio 1:
[tex]\[ \$500 + \$20,000 + \$1,500 + \$250 = \$22,250 \][/tex]

Portfolio 2:
- Stock in Large, Old Corporation: [tex]\( \$2,000 \times 1 = \$2,000 \)[/tex]
- Stock in Emerging Company: [tex]\( \$500 \times 4 = \$2,000 \)[/tex]
- U.S. Treasury Bond: [tex]\( \$500 \times 0.5 = \$250 \)[/tex]
- Certificate of Deposit: [tex]\( \$6,000 \times 0.5 = \$3,000 \)[/tex]

Total risk for Portfolio 2:
[tex]\[ \$2,000 + \$2,000 + \$250 + \$3,000 = \$7,250 \][/tex]

Portfolio 3:
- Stock in Large, Old Corporation: [tex]\( \$2,000 \times 1 = \$2,000 \)[/tex]
- Stock in Emerging Company: [tex]\( \$1,000 \times 4 = \$4,000 \)[/tex]
- U.S. Treasury Bond: [tex]\( \$1,000 \times 0.5 = \$500 \)[/tex]
- Certificate of Deposit: [tex]\( \$3,000 \times 0.5 = \$1,500 \)[/tex]

Total risk for Portfolio 3:
[tex]\[ \$2,000 + \$4,000 + \$500 + \$1,500 = \$8,000 \][/tex]

Now, we rank the portfolios from highest risk to lowest risk based on these calculated risk scores:
- Portfolio 1: \[tex]$22,250 - Portfolio 3: \$[/tex]8,000
- Portfolio 2: \$7,250

Therefore, the correct order from highest to lowest risk is:
Portfolio 1, Portfolio 3, Portfolio 2

So, the answer is:
Portfolio 1, Portfolio 3, Portfolio 2

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