Rate of Return Scenario Probability Stocks Bonds Recession .20 −5 % +14 % Normal economy .60...

		Rate of Return
Scenario	Probability	Stocks		Bonds
Recession	.20	−5	%	+14	%
Normal economy	.60	+15		+8
Boom	.20	+25		+4

Consider a portfolio with weights of .60 in stocks and .40 in bonds.

a.	What is the rate of return on the portfolio in each scenario? (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

Scenario	Rate of Return
Recession	%
Normal economy	%
Boom	%

b.	What are the expected rate of return and standard deviation of the portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)


Expected rate of return	%
Standard deviation	%

c.	What is the expected rate of return and standard deviation on an all-stock portfolio? An all-bond portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

	Expected rate of return	Standard deviation
100% stock:	%	%
100% bond:	%	%

Solutions

Expert Solution

jeff jeffy answered 1 month ago

Next > < Previous

Related Solutions

Rate of Return Scenario Probability Stocks Bonds Recession .20 −8 % +16 % Normal economy .50...

Rate of Return Scenario Probability Stocks Bonds Recession .20 −8 % +16 % Normal economy .50 +19 +9 Boom .30 +25 +6 Consider a portfolio with weights of .6 in stocks and .4 in bonds. a. What is the rate of return on the portfolio in each scenario? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Scenario Rate of Return Recession % Normal economy % Boom % b. What are the expected...

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession .2 -5% 14%...

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession .2 -5% 14% Normal economy .6 15% 8% Boom .2 25% 4% Is it reasonable to assume that bonds will provide higher returns in recession than in booms? Calculate the expected rate of return and standard deviation for each investment? Which invest would you prefer? Why? Use the data in the previous problem (problem 8) and consider a portfolio with weights of .60 in stocks and .40...

Consider the following scenario analysis Rate of Return Scenario Probability Stocks Bonds recession 0.20 -5% 14%...

Consider the following scenario analysis Rate of Return Scenario Probability Stocks Bonds recession 0.20 -5% 14% Normal economy 0.60 15 8 Boom 0.20 25 4 Is it reasonable to assume that treasury bonds will provide higher returns in recessions than in booms? Calculate the expected rate of return and return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.2 -5...

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.2 -5 % 17 % Normal economy 0.6 18 11 Boom 0.2 24 4 Assume a portfolio with weights of 0.60 in stocks and 0.40 in bonds. a. What is the rate of return on the portfolio in each scenario? (Enter your answer as a percent rounded to 1 decimal place.) b. What are the expected rate of return and standard deviation of the portfolio? (Do...

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.3 -5 %...

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.3 -5 % 14 % Normal economy 0.6 15 10 Boom 0.1 24 5 Assume a portfolio with weights of 0.60 in stocks and 0.40 in bonds. What is the rate of return on the portfolio in each scenario? (Enter your answer as a percent rounded to 1 decimal place.) b. What are the expected rate of return and standard deviation of the portfolio? (Do not round...

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.2 -5 %...

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.2 -5 % 13 % Normal economy 0.5 14 9 Boom 0.3 23 4 Assume a portfolio with weights of 0.60 in stocks and 0.40 in bonds. a.What is rate of return on the portfolio in each scenario? (Enter your answer as a percent rounded to 1 decimal place.) Recession rate of return:?% Normal Economy rate of return:?% Boom rate of return:?% b. What are the expected...

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 -5 %...

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 -5 % 14 % Normal economy 0.60 15 8 Boom 0.20 25 4 Assume a portfolio with weights of .60 in stocks and .40 in bonds. a. What is the rate of return on the portfolio in each scenario? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) b. What are the expected rate of return and standard deviation...

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 –5 %...

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 –5 % 19 % Normal economy 0.60 20 10 Boom 0.20 27 4 a. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.) Expected Rate of Return Standard Deviation Stocks ?% ?% Bonds ?% ?%

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 –5 %...

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 –5 % 17 % Normal economy 0.50 20 9 Boom 0.30 29 7 a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? No Yes b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

Consider the following scenario analysis: Rate of Return Scenario Recession Normal Boom Probability Stocks Bonds .2...

Consider the following scenario analysis: Rate of Return Scenario Recession Normal Boom Probability Stocks Bonds .2 -10% +14% .6 +15 +8 .2 +25 +3 Calculate the expected rate of return of stocks and bonds Calculate the standard deviation of each investment If you own 60% stocks and 40% bonds, what are your expected returns? If you own 60% stocks and 40% bonds, what is your standard deviation? Would you prefer to invest in the combined portfolio, stocks only, or bonds...

Subjects