Which of the following return objectives is most likely the primary objective given a 70 year-old widow who owns a portfolio comprised of 100% Treasury bonds? A) Current income. B) Capital preservation. C) Capital appreciation. the answer is B , but i guess the answer shoud be A as capital preservation is an appropriate goal when funds will be needed in the near future , plus fixed income securities provide a fixed coupon , ie; current income to supplement sources of income to meet living expenses . thats what i understand , am i missing anything ?
No, you’re right. She is getting both A and B. But which one best describes her choices? I think, in this case, if her goals were closer to A, she would choose higher-yielding higher-risk instruments (but still bonds maybe). The idea that she is choosing the most risk averse, lowest expected return investment suggests that she is most likely concerned about capital preservation. A portfolio of 100% government bonds is as close to the definition of a “capital preservation” portfolio as is practical. I can’t think of a more “capital preservation”-y portfolio. But I sure can think of more “current income”-y portfolios.
I think NByz answer is right to the point. In addition, she is already 70 years and might have a withdrawal plan/retirement plan which will give here a neutral balance, say, at 90, to cover living expenses. To meet that target the funds primarily need preservation, any income is nice, but not strictly required. A current income objective is very unlikely a recommended investment objective give here age.
I got it now , thanks alot for help