Problem 11-14 Scenario Analysis (LO2)

Consider the following scenario analysis:

		Rate of Return
Scenario	Probability	Stocks		Bonds
Recession	.30	7	%	18	%
Normal economy	.60	20		10
Boom	.10	26		3

a.

Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms?

	Yes
	No

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.)

	Expected Rate of Return	Standard Deviation
Stocks	%	%
Bonds	%	%