Business Case Studies & Business Publications

Stocks Versus Bonds: What Are the Odds?

Lipson, Marc L.

Case

Stocks Versus Bonds: What Are the Odds?

Lipson, Marc L.

F-1963 | Published May 6, 2024 | 5 Pages Case

Collection: Darden School of Business

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Product Details

In this short case, a Wall Street Journal article indicating that bond returns exceed stock returns about a third of the time motivates Deja Williams, an accountant and individual investor, to gather data and explore the issues on her own. Annual data on stock indexes and bond yields is provided. Despite the rather modest data set, the case provides an excellent foundation upon which to build a compelling class exploring risk and return and, with a modest amount of added work, introduce bond pricing basics. The context is nonthreatening to those new to finance, who tend to enjoy the discussion. This fictional case has been used at the University of Virginia Darden School of Business in the pre-matriculation program, where it is taught in a regular class format. It has also been used with executive programs. It would be appropriate for MBA or undergraduate classes as an introduction to financial markets. The case is particularly appropriate for audiences new to finance.

The case can be used to pursue the following objectives: (1) Introduce financial market institutional features, such as indexing and the existence of various asset classes with their associated investment vehicles. (2) Introduce key financial market concepts, such as market efficiency and diversification, and critical distinctions, such as the differences between prices and yields and between realized and expected returns. (3) Build comfort with key risk and return calculations, such as calculating annual returns from index and dividend data and finding the mean and standard deviation of returns. (4) Motivate bond pricing basics such as calculating yields and prices.