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