Question

Rank the following assets based on their expected return. Then repeat the exercise, this time ranking the assets based on their expected risk. Expected Return (1 = low, 5 = high) Expected Risk (1 = low, 5 = high) a. Real Estate a. Real Estate b. Commodities b. Commodities c. Canadian Equities (Stocks) c. Canadian Equities (Stocks) d. Cash d. Cash 2 I 2 e. Canadian Fixed Income Bonds e. Canadian Fixed Income Bonds References eBook & Resources

Answer 1

For expected return, the ranking will be

Cash - 1 (low return)

Canadian Fixed Income bond - 2

Commodities - 3

Real Estate - 4

Canadian Equities (Stocks) - 5 (maximum return)

For expected risk, the ranking will be

Cash - 1 (low risk)

Canadian Fixed Income Bond - 2

Real Estate - 3

Canadian Equities (Stocks) - 4

Commodities - 5 (most risky)

From the above ranking, we can say that the theory that higher the risk, the higher will be the return does not completely hold  here. This is because the there is maximum risk in commodities, whereas the maximum return is possible in Canadian Equities (Stocks).

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