(A) Statement 1 is true, but Statement 2 is false.
Statement 1 is correct — market capitalisation indicates a stock's risk level. Statement 2 is false — larger, more established companies tend to have stocks with low volatility, not high.
The key distinction here is that larger companies (large-cap) are considered more stable and less volatile. Small-cap companies carry higher volatility and risk. Statement 2 incorrectly states "high volatility" for larger companies — this reversal is the trap in this question. Examiners test whether students know that market cap is inversely related to volatility/risk.