In: Finance
Rate of Return |
|||||
Scenario | Probability | Stocks | Bonds | ||
Recession | .40 | −4 | % | +19 | % |
Normal economy | .50 | +20 | +9 | ||
Boom | .10 | +26 | +8 | ||
Consider a portfolio with weights of .7 in stocks and .3 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 rate of return and standard deviation of the portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
Expected rate of return | % |
Standard deviation | % |
c. | Which investment would you prefer? |
|
The best investment is to invest in the portfolio of Stocks and Bonds as it minimizes the overall risk and maximizes returns
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