16 Investing Stocks and Bonds Do bonds reduce the overall risk of an investment portfolio...
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16 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 11 0 36 21 31 23 24 11 11 21 y 10 2 29 14 22 18 14 2 3 10 a Compute x Ex Ey and Ey b Use the results of part a to compute the sample mean variance and standard deviation for x and for y c Compute a 75 Chebyshev interval around the mean for x values and also for y values Use the intervals to compare the two funds d Interpretation 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 s can be thought of as a measure of risk per unit of expected return In this case why is a smaller CV better Explain
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