B is correct because private equity real estate portfolios are less risky than stock portfolios and have lower expected returns. Private equity real estate has bond-like characteristics because of the stream of lease payments and at the same time has stock-like characteristics because of the dependency on the strength of the overall economy when leases are renewed. But Real Estate portfolios are MORE risky and have HIGHER expected returns than stock portfolios. What am I missing?
Is it really wrong in real life? I’d rather buy a nice two bedroom apartment in manhattan than buy $1.5 million of any single name stock if I were trying to preserve some level of capital.
Really depends what kind of real estate we’re talking about. I mean real estate ranges from super risky to super core, so it is a tough generalization to make.
I think here, because they say “real estate portfolios” that have “bond-like characteristics”, they are talking about high quality RE with good tenants. Although it was tough to see that before seeing the answers…
It’s not wrong according to the curriculum. The text does state along the lines of ‘a general portfolio’ because comparing a single to single can vary alot.
These are one of those questions which I feel are picking on details. Meant to differentiate those who knows the important points, and those who completely study and remember everything.
From the “stock/bond like characteristics” verbage, maybe the intent was to emphasize that it has lower correlation with stocks/bonds and lowers overall portfolio risk?
I didnt do the mock so I have no idea what the actual question was. Just speculating. Schweser really emphasized the diversification point.
I’m pretty sure it’s due to the fact that it has an “equity” componenet (the land value) and a “bond” characteristics (rental income). You have slight appreciation in the equity over time and the dividend income is normally a large % and grows with inflation.