Rank the following funds in order of their relative risk, from highest to lowest:
I. growth fund
II. high-yield bond fund
III. high-grade bond fund
IV. international fund
Explanation
Answer: A - The funds ordered by their relative risk from highest to lowest are IV, I, II, III. The highest risk is an international fund that invests in foreign securities, which exposes the investor to more currency exchange risk and some social and political risk as well. Next is the growth fund that invests most of its funds in domestic stocks, which are riskier than bonds. The high-yield bond fund is a junk bond fund and, as such, is next in the list. The high-grade bond fund invests mostly in investment-grade bonds, which offer investors a moderate risk exposure and is the least risky of the choices listed.
