Answer (D) is correct . The greater the standard deviation of the expected return, the riskier the investment. A large standard deviation implies that the range of possible returns is wide; i.e., the probability distribution is broadly dispersed. Conversely, the smaller the standard deviation, the tighter the probability distribution and the lower the risk.
Answer (A) is incorrect because An investment security with high risk will have a high expected return to compensate for the additional risk.
Answer (B) is incorrect because An investment security with high risk will not necessarily have a lower price than an investment security with low risk. For example, two bond issues with different risk levels might be sold at the same price but have different interest rates.
Answer (C) is incorrect because An expected rate of return by definition is a constant expected return.
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