Question
Consider the following scenario analysis: Scenario Probability Stocks Bonds Recession .40 4 % 19 % Normal economy .50 20 9 Boom .10 26 8 a.
Consider the following scenario analysis:
| Scenario | Probability | Stocks | Bonds | ||
| Recession | .40 | 4 | % | 19 | % |
| Normal economy | .50 | 20 |
| 9 |
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| Boom | .10 | 26 |
| 8 |
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| 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. Enter your answers as a percent rounded to 1 decimal place.) |
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| Expected Rate of Return | Standard Deviation |
| Stocks | % | % |
| Bonds | % | % |
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Business Finance
Authors: Brian Watts
8th Edition
0712110720, 978-0712110723
