Question
Rate of Return Scenario Probability Stocks Bonds Recession .20 6 % +18 % Normal economy .50 +19 +11 Boom .30 +26 +8 Consider a portfolio
| Rate of Return | |||||
| Scenario | Probability | Stocks | Bonds | ||
| Recession | .20 | 6 | % | +18 | % |
| Normal economy | .50 | +19 | +11 | ||
| Boom | .30 | +26 | +8 | ||
| Consider a portfolio with weights of .6 in stocks and .4 in bonds. |
| a. | What is the rate of return on the portfolio in each scenario? (Do not round intermediate calculations. Round your answers to 1 decimal place.) |
| Scenario | Rate of Return |
| Recession | % |
| Normal economy | % |
| Boom | % |
| b. | What are the expected rate of return and standard deviation of the portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| Expected rate of return | % |
| Standard deviation | % |
| c. | Which investment would you prefer? | |||
|
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Principles of Managerial Finance
Authors: Chad J. Zutter, Scott B. Smart
15th edition
013447631X, 134476315, 9780134478197 , 978-0134476315
