Question
In: Finance
Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession .2 -5% 14%...
- Consider the following scenario analysis:
|
Rate of Return |
|||
|
Scenario |
Probability |
Stocks |
Bonds |
|
Recession |
.2 |
-5% |
14% |
|
Normal economy |
.6 |
15% |
8% |
|
Boom |
.2 |
25% |
4% |
- Is it reasonable to assume that bonds will provide higher returns in recession than in booms?
- Calculate the expected rate of return and standard deviation for each investment?
- Which invest would you prefer? Why?
- Use the data in the previous problem (problem 8) and consider a portfolio with weights of .60 in stocks and .40 in bonds.
- What is the rate of return on the portfolio in each scenario?
- What are the expected rate of return and standard deviation of the portfolio?
- Would you prefer to invest in the portfolio, in stocks only, or in bonds only?
- Calculate the correlation coefficient for the bond and stock returns?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Consider the following scenario analysis Rate of Return Scenario Probability Stocks Bonds recession 0.20 -5% 14%...
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
Is it reasonable to assume that treasury bonds will provide
higher returns in recessions than in booms?
Calculate the expected rate of return and 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 0.3 -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 -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 –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 –5 %...
Consider the following scenario analysis: Rate of Return
Scenario Probability Stocks Bonds Recession 0.20 –5 % 17 % Normal
economy 0.50 20 9 Boom 0.30 29 7 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 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 0.2 -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 0.3 -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...
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