Question

Choose the INCORRECT option.

	A.	The optimal financial portfolio of an individual expecting to retire in 2 years has a large allocation to government bonds due to the safety they offer.
	B.	Stock market investors earn high average returns in the long term as a reward for being exposed to short term market fluctuations.
	C.	The reward for bearing short-run risk in the equity market leads to higher average returns.
	D.	Insurance contracts generally have a low average return because they act as hedging vehicles.
	E.	Long-term corporate bonds are generally less risky than Treasury bills due to the possibility of government default.

Answer 1

Long term corporate bonds are generally more risky than treasury bills as they donot have government backing while Treasury bills have government backing and highly secured and also known as risk free securities.

So statement (E) is false Which says Long-term corporate bonds are generally less risky than Treasury bills due to the possibility of government default.

An old person who expects to retire in next two years will like lesser risk exposure so will prefer Investment in bonds so statement A is true.

Stock market investors are exposed to higher risks and have higher returns so statement (B ) and (C) are true.

Insurance contracts returns are low as they offer lesser rate of returns as they are used as a hedging instrument. So statement (D) is true.

Only false statement is statement ( E) .