Based on risk, which of the following securities is most likely to produce the highest long-run return?

Common shares are generally expected to produce the highest long-run return compared to other types of securities listed. This expectation arises from the inherent risk-return relationship in investing. Common shares represent ownership in a company, and as such, they have the potential for capital appreciation as the company grows and becomes more profitable. In addition to capital appreciation, common shareholders may also benefit from dividends, which can increase over time as companies expand their earnings.

While the possible returns from common shares can be significant, they come with higher volatility and risk. The price of common shares can fluctuate considerably based on company performance, market conditions, and economic factors, leading to a broader range of potential outcomes. The inherent risk in equities is compensated by the potential for higher long-term returns compared to fixed-income securities.

In contrast, corporate bonds, preferred shares, and government bonds typically offer lower long-run returns due to their more stable and conservative nature. Bonds generally provide fixed interest payments and are less susceptible to fluctuations in market prices relative to equities, but they also tend to have capped return potential compared to common shares, especially during periods of economic growth.