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    Risk and return for common stocks vs. corporate bonds

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    Thoroughly explain the historical relationships between risk and return for common stocks versus corporate bonds, and thoroughly explain how diversification helps in risk reduction in a portfolio.

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    Common stocks are the riskiest of all investments as these are the last to be paid if a company liquidates and those who buy common stocks can experience drastic decreases in value on a day to day basis. Corporate bonds are a little safer as these are one of the first to be paid if a company goes under but the question is to how much is left to pay out the bonds ...

    Solution Summary

    The solution provides the difference between the risk and return of common stock versus corporate bonds and how diversification helps in minimizing losses.