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Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession .30 4 % +16 % Normal economy .50 +17 +10 Boom .20
Consider the following scenario analysis:
Rate of Return | |||||
Scenario | Probability | Stocks | Bonds | ||
Recession | .30 | 4 | % | +16 | % |
Normal economy | .50 | +17 | +10 | ||
Boom | .20 | +28 | +9 | ||
a. | Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? | ||||
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b. | Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Round your answers to 1 decimal place.) |
Expected Rate of Return | Standard Deviation | ||
Stocks | % | % | |
Bonds | % | % | |
c. | Which investment would you prefer? | ||||
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