Consider the following scenario analysis: Scenario Probability Stocks Bonds Recession 1/3 -14% 45% Normal Economy 1/3 12%
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Question:
Consider the following scenario analysis:
| Scenario | Probability | Stocks | Bonds |
| Recession | 1/3 | -14% | 45% |
| Normal Economy | 1/3 | 12% | 10% |
| Boom | 1/3 | 38% | -25% |
(a) What is the expected rate of return of the stocks? What is the expected rate of return of the bonds?
(b) What is the standard deviation of the return of the stocks? What is the standard deviation of the return of the bonds?
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