Question
In: Finance
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 round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
c. Would you prefer to invest in the portfolio, in stocks only, or in bonds only? Explain the benefit of diversification.
Solutions
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jeff jeffy answered 1 year agoRelated Solutions
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 -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 -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 0.2 -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...
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 −9 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.20
−9
%
20
%
Normal economy
0.50
21
%
8
%
Boom
0.30
31
%
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 –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 –6 %...
Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.20
–6
%
18
%
Normal economy
0.50
19
11
Boom
0.30
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.)
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