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? |
|
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
jeff jeffy answered 5 months agoRelated 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...
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....
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...
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.3 -4 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.3
-4
%
12
%
Normal economy
0.4
13
7
Boom
0.3
22
3
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.)
Rate of Return
Recession
%
Normal economy
%
Boom
%
b. What are the expected rate...
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.3 -4 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.3
-4
%
12
%
Normal economy
0.4
13
7
Boom
0.3
22
3
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 not...
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.2 -4 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.2
-4
%
15
%
Normal economy
0.7
16
11
Boom
0.1
25
3
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? (Enter your...
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 −4 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.20
−4
%
19
%
Normal economy
0.40
20
%
9
%
Boom
0.40
26
%
8
%
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 Probability Stocks Bonds Recession 0.20 −4 %...
Consider the following scenario analysis: Rate of Return
Scenario Probability Stocks Bonds Recession 0.20 −4 % 19 % Normal
economy 0.40 20 % 9 % Boom 0.40 26 % 8 % 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 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 0.2 -7 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.2
-7
%
19
%
Normal economy
0.5
20
7
Boom
0.3
23
6
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?
Rate of Return
Recession_______%
Normal economy_______%
Boom______%
b. What are the expected rate of return and
standard deviation of the portfolio?
Expected return____%
Standard deviation_____%
c. Would...
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