CFA Practice Question

There are 139 practice questions for this study session.

CFA Practice Question

Which of the following is a valid reason for including real estate in an investment portfolio?
A. Real estate returns have low correlations with bond returns.
B. Real estate investments have lower risk than stocks.
C. Real estate transactions involve low costs.
Explanation: Real estate returns exhibit low correlations with bond returns. Real estate returns depend on the cash flows from the real estate and changes in its value. However, real estate investments generally have relatively low liquidity. In addition, real estate transactions involve large transaction costs and typically have high levels of property-specific (firm-specific) risks.

User Contributed Comments 3

User Comment
soukhov in Russia we have the strong correlation between oil prices, money supply, stock prices and real estate prices. it depends on stage of market evolution.
anatoly87 From the textbook: Correlations of global real estate and equity returns are relatively high, and correlation of global real estate and bond returns are relatively low.
gsauber Real Estate investments are sometimes considered bond proxies.
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