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(Diversifying Portfolios MC)
\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 levels of risk of the given portfolios, we need to identify which investment category is associated with higher risk. In this case, the “Stock in Emerging Company” typically represents the highest risk due to its potential for high volatility and growth.

Here are the investments in "Stock in Emerging Company" for each portfolio:

- Portfolio 1: [tex]$5,000 - Portfolio 2: $[/tex]500
- Portfolio 3: [tex]$1,000 Next, we’ll rank the portfolios based on these amounts from highest to lowest risk: 1. Portfolio 1 has an investment of $[/tex]5,000 in "Stock in Emerging Company," representing the highest risk.
2. Portfolio 3 has an investment of [tex]$1,000 in "Stock in Emerging Company," representing a moderate level of risk. 3. Portfolio 2 has an investment of $[/tex]500 in "Stock in Emerging Company," representing the lowest risk in comparison.

Therefore, the portfolios ranked from highest to lowest risk are:

1. Portfolio 1
2. Portfolio 3
3. Portfolio 2

Thus, the correct answer is:

Portfolio 1, portfolio 3, portfolio 2.

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