Question

In: Finance

Rate of Return   Scenario Probability Stocks Bonds   Recession .40 −4 % +19 %   Normal economy .50...

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?
  • Portfolio

  • Bonds

  • Stocks

Solutions

Expert Solution

The best investment is to invest in the portfolio of Stocks and Bonds as it minimizes the overall risk and maximizes returns

Formulae


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