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Do bonds reduce the overall risk of an investment portfolio? Let x be a random variable representing annual percent return for Vanguard Total Stock Index
Do bonds reduce the overall risk of an investment portfolio? Let be a random variable representing annual percent return for Vanguard Total Stock Index all stocks Let be a random variable representing annual return for Vanguard Balanced Index stock and bond For the past several years, we have the following data.
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b Use the results of part a to compute the sample mean, variance, and standard deviation for and for Round your answers to four decimal places.
c Compute the coefficient of variation for each fund. Round your answers to the nearest whole number.
table
Use the coefficients of variation to compare the two funds.
For each unit of return, the stock fund has lower risk.
For each unit of return, the balanced fund has lower risk.
For each unit of return, the funds have equal risk.
If represents risks and represents expected return, then can be thought of as a measure of risk per unit of expected return. In this case, why is a smaller CV better? Explain.
A smaller CV is better because it indicates a higher risk per unit of expected return.
A smaller is better because it indicates a lower risk per unit of expected return.
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