Question

analyze the risk and return of corporate investments and financing options.

Include analysis of the following in your statement:

• High-yield corporate bonds
• Small cap stocks
• Blue chip stocks
• U.S. Treasury bonds

Answer 1

High yield corporate bonds - These bonds are risky bonds which have a default risk and also a credit risk because the yields are high. High yields always indicate higher risk.

Small chip stocks - Here we are investing in a different asset class, equity. Equity always has more risk when compared to debt. However, Small Cap stock carry even a higher risk because the size of companies are smaller. However, due to higher risk, the return expectation is also higher

Blue chip stock - Although they carry the overall market risk that come with equities, the risk is much lower than small cap stocks. Hence the return expectations are lower.

US Treasury bonds - These are considered risk free assets and will have the lowest return among all assets classes because of no risk.