Final answer:
The greater the proportion of stocks to bonds in your portfolio, the greater the market risk. A rise in supply in the financial market can lead to a decline in interest rates, reflecting the relationship between supply and demand for funds.
Step-by-step explanation:
The proportion of stocks to bonds in your portfolio is a key factor in determining your investment risk profile. Specifically, the greater the proportion of stocks to bonds, the greater the market risk.
Now, regarding changes in the financial markets that could lead to a decline in interest rates, an important concept to understand is that interest rates are influenced by supply and demand. A rise in supply of funds in the financial markets, all else being equal, can lead to lower interest rates because more funds are available for borrowing.
Bonds carry interest rates that include components such as compensation for delaying consumption, an inflation adjustment, and a risk premium. The interest rate offered by bonds reflects the riskiness of the borrower. Hence, investment in bonds involves an assessment of interest rate risk, reinvestment risk, inflation risk, and the risk associated with the borrower's ability to repay, which is the risk premium.