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Assume that an economy can have four states: Severe recession, Mild recession, Normal growth, Boom. Probability of each scenario, stock and bond annual returns in
Assume that an economy can have four states: Severe recession, Mild recession, Normal growth, Boom. Probability of each scenario, stock and bond annual returns in that scenario are provided below. Lets also assume that you are creating a portfolio with 65% stocks and 35% bonds. Economy State Probability Stock Return (%) Bond Return (%) Severe recession 0.20 -37 -9 Mild recession
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