Question $5$

$0\mathrm{.}5$ pts

Stocks offer an expected rate of return of $18\%$ with a standard deviation of $22\%.$ Gold offers an expected return of $10\%$ with a standard deviation of $30\%.$

In light of the apparent inferiority of gold with respect to both mean return and volatility, would anyone hold gold?

$$ Gold is expected to outperform stocks in the long run despite its lower mean return.

Gold is highly correlated with stocks, providing similar returns but with more volatility.

Gold offers diversification benefits, a hedge against inflation, and acts as a safe$-$haven asset during periods of market uncertainty, which can reduce overall portfolio risk.

Gold offers tax advantages that stocks do not, making it more attractive despite its lower expected return.