Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.3 -3 % 12 % Normal economy 0.6 13 8 Boom 0.1 26 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.)

b. What are the expected rate of return and standard deviation of the portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c. Would you prefer to invest in the portfolio, in stocks only, or in bonds only? Explain the benefit of diversification.

c. Would you prefer to invest in the portfolio, in stocks only, or in bonds only? Explain the benefit of diversification.