| Course | FNCE 3001 Financial Management |
|---|---|
| Week | Week 6 |
| Paper type | Risk and return brief |
| Length | About 580 words, 5 pages |
| Format | APA 7 student paper |
| School | Walden University |
| Program | BS in Business Administration |
| Updated | October 2026 |
Free sample paper for FNCE 3001 Week 6
Where to Park $1.5 Million of Off-Season Cash for Five Years: Average Return, Standard Deviation and Coefficient of Variation for a Short-Term Bond Fund and a Stock Index Fund, and Why a Blend Wins
Student Name
Walden University
FNCE 3001: Financial Management
Instructor Name
Month Day, Year
Where to Park $1.5 Million of Off-Season Cash for Five Years: Average Return, Standard Deviation and Coefficient of Variation for a Short-Term Bond Fund and a Stock Index Fund, and Why a Blend Wins
The Question and the Data
Juniper Peak Sports, a composite Rocky Mountain outdoor retailer, keeps a long-term reserve of about $1.5 million that it does not expect to need for five years. The board asked whether to hold it in a short-term bond fund or a broad stock index fund. This brief compares the two using five years of annual total returns. The returns are illustrative figures prepared for this exercise, chosen to resemble the general pattern of such funds; they are not the record of any named fund.
Table 1
Annual Total Returns and Summary Measures, Years 1 to 5 (percent)
| Measure | Short-term bond fund | Stock index fund | 70/30 blend | |
|---|---|---|---|
| Year 1 | 3.1 | 18.0 | 7.6 | |
| Year 2 | 4.2 | −12.0 | −0.7 | |
| Year 3 | −1.5 | 24.0 | 6.2 | |
| Year 4 | 2.8 | 9.0 | 4.7 | |
| Year 5 | 4.9 | 15.0 | 7.9 | |
| Arithmetic average | 2.70 | 10.80 | 5.13 | |
| Standard deviation | 2.49 | 13.85 | 3.48 | |
| Coefficient of variation | 0.92 | 1.28 | 0.68 | |
Illustrative returns. Standard deviation is the sample standard deviation. The blend is 70 percent bond fund and 30 percent stock fund, rebalanced each year.
Each Asset's Pair of Figures
The bond fund averaged 2.70 percent a year, and its yearly returns had a standard deviation of 2.49 percentage points. In its worst year it lost 1.5 percent. The stock fund returned an average of 10.80 percent with a standard deviation of 13.85 points, and in its worst year it lost 12.0 percent. Standard deviation measures how widely the yearly returns spread around their average; a larger figure means a wider range of likely outcomes in any one year (Brigham & Houston, 2022).
The Comparison
The stock fund earned four times the bond fund's average return, but it carried more than five times the spread. Dividing each fund's standard deviation by its average return, which gives the coefficient of variation, puts the two on one scale: the bond fund carries 0.92 units of risk per unit of return, the stock fund 1.28. On that measure the bond fund is the more efficient holding, although its return barely keeps pace with inflation. For a reserve that must be available in five years, the stock fund's bad years matter: a 12 percent loss on $1.5 million is $180,000, which could fall just before the money is needed.
The Blend
A 70/30 blend averaged 5.13 percent with a standard deviation of only 3.48 points, giving a coefficient of variation of 0.68, lower than either fund alone. That happens because the two funds did not move together: the stock fund's worst year was one of the bond fund's best. Markowitz (1952) demonstrated that a mix of holdings whose returns do not move in lockstep carries less risk than the average of the holdings' separate risks. Its worst year was a loss of 0.7 percent, or about $10,000 on the reserve.
Recommendation
Hold the reserve in a 70/30 blend. It nearly doubles the bond fund's average return while keeping the worst year close to break-even. Choosing on average return alone would pick the stock fund; choosing on risk alone would pick the bond fund; the pair together points to the blend. Five years of data is a short record, so the board should revisit the mix if the funds' behavior changes (Ross et al., 2022).
References
Brigham, E. F., & Houston, J. F. (2022). Fundamentals of financial management (16th ed.). Cengage Learning.
Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77-91. https://doi.org/10.1111/j.1540-6261.1952.tb01525.x
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2022). Fundamentals of corporate finance (13th ed.). McGraw Hill.
FNCE 3001 Week 6 instructions, in plain terms
In Week 6 you compare two or more investments using both return and risk. Present the period returns, the data source and the years covered. For each asset, compute the average return, the standard deviation and the coefficient of variation, and report each pair in a sentence. Then compare the assets, explaining what the higher return costs in added variability. If a portfolio weighting is given, compute its return and risk and explain any diversification effect. Close with a recommendation that follows from the pairing of return and risk rather than from return alone. Two or three pages are usually enough.
How this FNCE 3001 Week 6 example is built
The brief sets out the board's question and labels the returns as illustrative. One table holds five years of returns for each fund and the blend, with averages, standard deviations and coefficients of variation. A paragraph reports each fund's pair of figures and its worst year, citing Brigham and Houston. The comparison paragraph shows the stock fund's coefficient of variation is higher and converts its worst year into a $180,000 loss on the reserve. The blend section shows lower risk than either fund, citing Markowitz on imperfect correlation. The recommendation favors the blend and cautions that five years is a short record, citing Ross and colleagues.
Reading the FNCE 3001 Week 6 rubric
Risk and return briefs are graded on whether the conclusion follows from return and risk together. Each asset's average and standard deviation must be computed correctly and reported in the text, not only in the table. The data source and period must be stated. Strong briefs use the coefficient of variation or a similar measure to compare risk per unit of return, and translate risk into money where possible. A portfolio section should explain diversification, not just compute it. Recommendations based on the higher average alone, or ignoring the investor's time horizon, lose credit. The table and text must agree.
Common FNCE 3001 Week 6 mistakes, and how to avoid them
List each asset's returns in a column and compute the average and standard deviation with a spreadsheet; note whether you used the sample or population formula. Divide the standard deviation by the average for the coefficient of variation. Then ask: how much extra return does the riskier asset give, and how bad could a single year be? Put that worst year into dollars for the amount invested. If you combine the assets, check whether their good and bad years coincide. Common mistakes are choosing on average return alone and omitting the data source. Send us your return data and we can build a model brief with you. Remember to state that your figures are illustrative if they are, or to name the fund, index and years if they are real. Graders check the source line first.
Get a FNCE 3001 Week 6 example written to your instructions
Requests that include the Week 6 prompt, the rubric and the return series your section assigned, with its years and sampling frequency, come back as a brief with the dispersion computed on that same data. Nothing is charged for a first sample and it takes 24 to 48 hours, with the exhibit labeled to match the template in your classroom.
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FNCE 3001 Week 6 questions, answered
Where can I find a free FNCE 3001 Week 6 sample paper?
The full brief, its return table and the recommendation are on this page, available free.
Which fund has the higher return in the FNCE 3001 Week 6 brief?
The stock index fund, averaging 10.80 percent a year against 2.70 percent for the bond fund.
Which fund is riskier per unit of return?
The stock fund, with a coefficient of variation of 1.28 against 0.92 for the bond fund.
Why does the blend have lower risk than either fund?
The two funds' returns did not move together, so their swings partly offset each other.
What does the brief recommend?
A 70/30 blend of bond and stock funds, which averaged 5.13 percent with a worst year of only a 0.7 percent loss.