Which of the following asset allocations is considered the least volatile?

Prepare for the Canon Financial Institute CFIRS Exam with flashcards and multiple choice questions. Each question comes with hints and explanations for better understanding. Get ready to excel in your exam!

The allocation with 30% large-cap stocks, 10% international stocks, 40% treasury bills, and 20% intermediate bonds is considered the least volatile due to its diversified approach across several asset classes. By combining stocks, which tend to have higher volatility and potential return, with more stable investments like treasury bills and intermediate bonds, this allocation balances risk and return effectively.

Treasury bills are particularly low in volatility as they are backed by the government and provide a fixed return with minimal risk. Intermediate bonds, while subject to interest rate fluctuations, generally offer more stability than long-term bonds or equities. The inclusion of a smaller percentage in international stocks further diversifies the risk, as it exposes the portfolio to different markets which may not always move in tandem with domestic markets.

In contrast, other options concentrate investments in fewer asset classes or higher-risk assets. For instance, investing 100% in long-term government bonds or large-cap stocks could expose the portfolio to significant fluctuations based on changes in interest rates or stock market volatility, respectively. Thus, the well-balanced mix in the correct allocation minimizes overall risk and leads to reduced volatility compared to the other choices.

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