Explain why bonds (and bond mutual funds and ETFs), even though they offer lower returns than...
Explain why bonds (and bond mutual funds and ETFs), even though they offer lower returns than stocks, are commonly added to stock portfolios to create "balanced" portfolios. Include the impact bonds have on portfolio volatility based on bond's volatility relative to stocks and bond's correlation with stocks
Homework Answers
Bonds typically have lower risk and lower returns compared to stocks. Also, the returns of bonds do not have high correlation with stock returns. Therefore, bonds provide are added to create balanced portfolios because the low correlation between bond and stock returns, and the lower volatility of bonds provide a diversification benefit which decreases the volatility of the overall portfolio.
Thus, bond's lower volatility and low correlation with stocks decreases overall portfolio volatility.
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Explain why bonds (and bond mutual funds and ETFs), even though
they offer lower returns than...
A pension fund manager is considering three mutual funds for investment. The first one is a...
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A pension fund manager is considering three mutual funds. The first is a stock fund, the...
A pension fund manager is
considering three mutual funds. The first is a stock fund, the
second is a long-term government and corporate bond fund, and the
third is a T-bill money market fund that yields a rate of 5%. The
probability distribution of the risky funds is as follows:
Expected Return 20% Standard Deviation 35% 15 Stock fund (5) Bond fund (B) The correlation between the fund returns is 0.09. You require that your portfolio yield an expected return...
A pension fund manager is considering three mutual funds. The first is a stock fund, the...
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second is a long-term government and corporate bond fund, and the
third is a T-bill money market fund that yields a rate of 5%. The
probability distribution of the risky funds is as follows:
Expected Return 20% Standard Deviation 35% 15 Stock fund (5) Bond fund (B) The correlation between the fund returns is 0.09. You require that your portfolio yield an expected return...
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