CFA Practice Question
Which of the following is correct?
A. Riskier investments like stocks are more appropriate compared to bonds for short term investors compared to long term investors.
B. In the US, equity and bonds over the long term have had approximately the same return.
C. Historically in the US, equity has had greater variability in returns compared to bonds.
Explanation: The historic U.S. risk premium (over the last century) has been about 6% rather than 0%. Long term investors should prefer stocks as in the long term they generally outperform bonds whereas in the short term them may underperform.
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