) Investing: Stocks and Bonds 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 (all stocks). Let y be a random variable representing annual return for Vanguard Balanced Index (60% stock and 40% bond). For the past several years, we have the following data (Reference: Morningstar Research Group, Chicago).
X 11 0 36 21 31 23 24 -11 -11 -21
Y 10 -2 29 14 22 18 14 -2 -3 -10
(a) Compute ∑X , ∑Y , ∑X2 and ∑Y2.
(b) Use the results of part (a) to compute the sample mean, standard deviation for x and for y and Interpret what does the SD represent?
(c) Compute the coefficient of variation for each fund. Use the coefficients of variation to compare the two funds. If s 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? Interpret your answer
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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 X be a random variable representing annual return for Vanguard Balanced Index ( 60% stock and40%) For the past several years, we have the following data (Reference:Morningstar Research Group, Chicago):
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