Expected Return

CFA Level III Portfolio Management
#1

Portfolio A: 5% Small Cap Growth, 5% Large Cap Value, 5% High Yield Bonds, 35% T-Bills, 50% Corporate Bonds.

Portfolio B: 0% Small Cap Growth, 0% Large Cap Value, 0% High Yield Bonds, 0% T-Bills, 100% Corporate Bonds

Schweser says Portfolio A has lower expected return than Portfolio B, what’s the rationale?

#2

Where did you find this question?

#3

without information about portfolio size and expected returns of each asset class, this is a hasty conclusion/generalization.

however, it’s understandable since corporate bonds roughly has equal returns with high yield bonds.

if we’re about to rank the possible returns of each asset class using heuristics and without numbers from lowest to highest:

t-bill -> high yield/corporate bond -> large cap value -> small cap growth