Compared to a portfolio composed entirely of stock, a portfolio that is 50 percent government bonds and 50 percent stock will have a

Question

a. lower return and a lower level of risk.
b. higher return and a higher level of risk.
c. higher return and a lower level of risk.
d. lower return and a higher level of risk.

Answer 1

The correct answer is:

a. lower return and a lower level of risk.

A portfolio that is composed of 50 percent government bonds and 50 percent stocks typically results in a lower overall return compared to a portfolio made entirely of stocks, as bonds generally yield lower returns than stocks. However, the addition of government bonds reduces the overall volatility and risk of the portfolio, leading to a lower level of risk compared to an all-stock portfolio.