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Rate of Return Scenario Probability Stocks Bonds Recession .20 6% +18% Normal economy .50 +19 +11 Boom .30 +26 +8 a. Is it reasonable to

Rate of Return

Scenario Probability Stocks Bonds

Recession .20 6% +18%

Normal economy .50 +19 +11

Boom .30 +26 +8

a. Is it reasonable to assume that treasury bonds will provide higher returns in recessions than in booms? Yes or No

b. Calculate the expected rate of return and standard deviation for each investment (Do not round intermediate calculations. Round your answers to 1 decimal place.)

c .Which investment would you prefer?Is the stock more risk-averse or less risk-averse? Is the bond more risk-averse or less risk-averse?

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