Rate of Return

Scenario Probability, Stocks, Bonds

Recession .20, 8 % , +16 %

Normal economy .50, +19, +9

Boom .30, +25, +6

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?

Portfolio

Bonds

Stocks