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PART A,B &C. Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 5 % 17 % Normal economy 0.50 20
PART A,B &C.
Consider the following scenario analysis:
Rate of Return | |||||
Scenario | Probability | Stocks | Bonds | ||
Recession | 0.20 | 5 | % | 17 | % |
Normal economy | 0.50 | 20 | % | 9 | % |
Boom | 0.30 | 29 | % | 7 | % |
a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms?
multiple choice
-
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.)
c. Which investment would you prefer?
STOCK
- more risk-averse
- less risk-averse
- risk-neutral
BOND
- more risk-averse
- less risk-averse
- risk-neutral
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