5

1.76points

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Item 5

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?

multiple choice

• 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.)

c. Which investment would you prefer?