While the evidence suggests that over long periods of time that stocks will outperform bonds, individuals...

While the evidence suggests that over long periods of time that stocks will outperform bonds, individuals with a long-term investment horizon may still choose to invest in bonds. Is this rational behavior? Why or why not?

Expert Solution

This is a rational behaviour because investors are investing in market based upon their risk appetite and various investors are investing in bonds in order to have a rate of return which is uniform in nature and they also do not like the volatility in the stock and they may need money at regular intervals so guarantee of stock return is never there in market, So they will be investing in bonds because they will be needing money at regular intervals and they are risk averse.

Hence, this is a rational behaviour because of the volatility of the stock,investors are not choosing to invest into them, and they will be choosing bonds for the longer period of time as they feel that they want low-risk asset with a uniform rate of return.

jeff jeffy answered 2 years ago

While the evidence suggests that over long periods of time that stocks will outperform bonds, individuals...

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While the evidence suggests that over long periods of time that stocks will outperform bonds, individuals...

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