.Rate of Return

Scenario . .Probability. .Stocks. .Bonds.

Recession .20 7 % +20 %

Normal economy .60 +22% +11%

Boom .20 +33% +7%

Consider a portfolio with weights of .7 in stocks and .3 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