1. Evaluate and describe the essential elements contributing to the risk return trade-off for the internationally diversified bond portfolio for the context summarised in Figure 4.

Figure 4: Risk return trade-off for international bond portfolios

Exhibit 2.12 Risk-Return Trade-off for International Bond Portfolios 11.00 10.00 100% Foreign 10% U.S. 90% Foreign 9.00 Rate of Return Percent per Year 70% U.S. 30% Foreign 8.00 - 7.00 100% U.S. 6.00 7.00 8.00 9.00 10.00 11.00 12.00 13.00 Risk (o) Percent per Year