Adding inflation-linked bonds to a diversified portfolio of bonds and equities is most likely to result in: A. superior risk-adjusted real portfolio returns. B. superior risk-adjusted nominal portfolio returns. C. superior risk-adjusted nominal portfolio returns but inferior risk-adjusted real portfolio returns.

The correct answer is Option A. This improvement occurs because inflation-linked bonds can effectively represent a separate asset class, as they offer returns that differ from other asset classes and add to market completeness, inflation-linked bonds offer a constant real return.

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This topic has 2 replies, 2 voices, and was last updated Apr-207:02 pm by MarkMeldrum.

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- MarkMeldrum
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  03 Apr 2020 at 5:57 am
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  Adding inflation-linked bonds to a diversified portfolio of bonds and equities is most likely to result in:
  - A. superior risk-adjusted real portfolio returns.
  - B. superior risk-adjusted nominal portfolio returns.
  - C. superior risk-adjusted nominal portfolio returns but inferior
    risk-adjusted real portfolio returns.
- yash0303
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  05 Apr 2020 at 4:43 pm
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  Good Quesiton.
- MarkMeldrum
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  06 Apr 2020 at 7:02 pm
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  The correct answer is Option A.
  
  This improvement occurs because inflation-linked bonds can effectively represent a separate asset class, as they offer returns that differ from other asset classes and add to market completeness, inflation-linked bonds offer a constant real return.
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