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.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.)

Expected Rate of Return Standard Deviation

Stocks % %

Bonds % %

c.Which investment would you prefer?