This paper circulates around the core theme of A fundamental concept in finance is the risk versus return concept. The more the risk involved with an investment, the greater will be the required rate of return for that investment. Different investors have different risk tolerance levels. Some investor together with its essential aspects. It has been reviewed and purchased by the majority of students thus, this paper is rated 4.8 out of 5 points by the students. In addition to this, the price of this paper commences from £ 99. To get this paper written from the scratch, order this assignment now. 100% confidential, 100% plagiarism-free.
A fundamental concept in finance is the risk versus return concept. The
more the risk involved with an investment, the greater will be the
required rate of return for that investment. Different investors have
different risk tolerance levels. Some investors may choose not to invest
in stocks because they do not like the volatility of the stock market.
Others may choose more conservative approaches, such as investing in
high quality, intermediate-term bonds, because they prefer the reduced
volatility of such an investment as compared to the stock market. From
1926 through 2008: Small-company stocks had an arithmetic mean return of
16.4% and a standard deviation of 33%. Large-company stocks had an
arithmetic mean return of 11.7% and a standard deviation of 20.6%.
Long-term corporate bonds had an arithmetic mean return of 6.2% and a
standard deviation of 8.4%. Long-term government bonds had an arithmetic
mean return of 6.1% and a standard deviation of 9.4%. Intermediate-term
government bonds had an arithmetic mean return of 5.6% and a standard
deviation of 5.7%. U.S. Treasury bills had an arithmetic mean return of
3.8% and a standard deviation of 3.1%. Sources: Adapted with permission
from Ibbotson, R. G., & Sinquefield, R. A. (2009). Stocks, bonds,
bills and inflation yearbookTM. Chicago: Morningstar. Ross, S. A.,
Westerfield, R. W., & Jaffe, J. (2010). Corporate finance. New York:
McGraw-Hill. Historically, large U.S. stocks have produced higher
average annual returns than U.S. Treasury bills. However, in some years,
such as 2008, the U.S. Treasury bills outperformed large U.S. stocks.
Why do you think this happened?
