Return and Risk: Consider the following scenario: Rate of Return Scenario Prob. Stocks Bonds Recession .20...

Return and Risk: Consider the following scenario: Rate of Return Scenario Prob. Stocks Bonds Recession .20 - 5% 14% Normal .60 15% 8% Boom .20 25% 4%___ 1. What is the expected return for each investment? Bonds: Stocks: Portfolio (40% in bonds, 60% in stocks):

2. What is the risk for each investment? Bonds: Stocks: Portfolio (40% in bonds, 60% in stocks):

3. Which investment do you prefer? A. Bonds B. Stocks C. Portfolio

4. Investors expect the market return this year to be 14%. A stock with a beta of .8 has an expected return of 12%. If the market return this year turns out to be 10%, what is your best guess as to the rate of return on the stock? Suppose that the S&P500 has an expected return of 15% and T - bills provide a risk - free rate of 5%.

5. How to construct a portfolio from these two assets with a n expected return of 12%? Weight for S&P500: Weight for T - bills: 6. How to construct a portfolio from these two assets with a beta of .4? Weight for S&P500: Weight for T - bills:

Please provide full solutions for each a problem, not just a final answer so I can fully understand this. Thank you :)

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Expert Solution

jeff jeffy answered 1 year ago

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