Amanda talks with several different brokers at a social gathering. She hears the following advice from brokers A, B, and C. Which broker, if any, gave her incorrect advice?
A)Broker A: "There are risks in holding stocks, even in a highly diversified portfolio."
B)Broker B: "Portfolios with smaller standard deviations have lower risk."
C)Broker C: "Stocks with greater risks offer lower average returns."
D)They all gave her correct advice.

Question

Quizplus · Accepted Answer

Broker C's advice is incorrect because, generally, stocks with greater risks are expected to offer higher average returns to compensate investors for taking on more risk. This principle is a fundamental concept in finance known as the risk-return tradeoff.

Amanda Talks with Several Different Brokers at a Social Gathering