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If bonds issued by Company X are yielding 4%, we might expect a 7% return from its stock, since we figure the stock is 3% riskier than the bond

I would figure the theortical stock would be 75% more risky.

7 minus 4 = 3

3/4 = 75%

Two reasons to include bonds in a portfolio.

1. High quality bonds should pay face value at maturity.

2. Portfoliow with bonds have less volatility.

3. Bonus-Dr. Ben Graham, who Warren Buffett said is the smartest person he ever met, always insisted on a minimum of 25% bonds and a minimum of 25% stock.
To which I add "the rest is details."

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