Compare stocks and bonds with respect to risk and return.

Expert Solution

Solution :-

As we know stocks having high risk while bonds having low risk because the price of the stock fluctuates speedily while the price of the bonds fluctuates rarely and we all know taking the high risks means earning the huge returns.

The stock holders are taking risk in the business they are getting share in profit as well as loss in the company while the bonds holders getting interest at fixed rate they are not sharing any loss .

Similarly bonds holders gets only interest in case of huge profit all the remaining profit distributes only to stock holders.

Bond holders are just a lenders while the stock holders are the owners of the company.

Also they are getting the return at last while the bond holders getting the interest before the shareholders equity as well as preference also.

The stocks are tradeble as well as transfer easily so they fluctuate very speedy due to high demand of sell and buy.

Due to all this we conclude that the stocks has return because they take high risks while the bonds has low return as compared to stock because they are getting fixed interest because they can not take any risk.

Rahul Sunny answered 1 year ago

Compare the historical risk-return trade-off for stocks and bonds.

Return and Risk: Consider the following scenario: Rate of Return Scenario Prob. Stocks Bonds Recession .20...

Return and Risk: Consider the following scenario: Rate of Return Scenario Prob. Stocks Bonds Recession .20 - 5% 14% Normal .60 15% 8% Boom .20 25% 4%___ 1. What is the expected return for each investment? Bonds: Stocks: Portfolio (40% in bonds, 60% in stocks): 2. What is the risk for each investment? Bonds: Stocks: Portfolio (40% in bonds, 60% in stocks): 3. Which investment do you prefer? A. Bonds B. Stocks C. Portfolio 4. Investors expect the market return...

With respect to the risk / return graph: why is the shape of the graph a...

With respect to the risk / return graph: why is the shape of the graph a curve when the correlation is between -1 and 1? Why is it a straight line in the other two cases? What happens to portfolio risk as you invest in more than one asset? What happens to portfolio risk as the number of assets increase?

RISK AND RETURN – (A) Consider the expected return and standard deviation of these four stocks...

RISK AND RETURN – (A) Consider the expected return and standard deviation of these four stocks (chart below). If investors are buying only one stock, which one of these stocks would no investor buy? Why? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM FOR EXCEL). STOCK EXPECTED RETURN STANDARD DEVIATION A 6% 1% B 7% 1.5% C 7% 2% D 8% 2% ADDING AN ASSET TO A PORTFOLIO - (B) Your current portfolio's cash returns over the past three years look...

Historically high return stocks have exhibited lower risk than low return stocks….just the opposite what the...

Historically high return stocks have exhibited lower risk than low return stocks….just the opposite what the SML (Security Market Line) predicts. Wall Street ( and unsuspecting financial planners) has been very successful in selling main street the story that higher risk = higher reward, while the smart money knows this and is able to effectively arbitrage excess returns from low risk stocks? To what extent does this make sense? Discuss and elaborate your response.

Rate of Return for Stocks and Bonds Purpose of Assignment The purpose of this assignment is...

Rate of Return for Stocks and Bonds Purpose of Assignment The purpose of this assignment is to allow the student an opportunity to calculate the rate of return of equity and debt instruments. It allows the student to understand the effects of dividends; capital gains; inflation rates; and how the nominal rate of return affects valuation and pricing. The assignment also allows the student to apply concepts related to CAPM, WACC, and Flotation Costs to understand the influence of debt...

Risk and Return Sarah is a financial analyst of a portfolio consisting of the stocks shown...

Risk and Return Sarah is a financial analyst of a portfolio consisting of the stocks shown below. The risk free rate is 3% and the market risk premium is 8%. Stock H, Investment $2mil, Beta 1.4 Stock I, Investment $3mil, Beta 1.0 Stock J, Investment $5mil, Beta -0.2 Compute beta and expected return of portfolio.

Explain the four moments with respect to investing and specifically, to risk-return. How does this link to...

Explain the four moments with respect to investing and specifically, to risk-return. How does this link to normality assumptions? What information does each contain?

Compare details of all three countries with respect to economic, investor, risk , political factors as...

Compare details of all three countries with respect to economic, investor, risk , political factors as follows which you think most important for Tesla Giga- project and three countries are Canada ,Denmark and Kenya

Which one of the following stocks is correctly priced if the risk-free rate of return is...

Which one of the following stocks is correctly priced if the risk-free rate of return is 4.1 percent and the market risk premium is 8.6 percent? stock c stock b stock a stock d stock e Stock Beta Expected Return A .81 7.88 % B 1.57 12.69 C 1.38 11.35 D 1.37 11.99 E .95 12.27

Question