Return and Risk: Consider the following scenario Prob Recession Normal Boom .20 .60 -5% 1 5% 14% 8% 1. What is the expected return for each investment? Bonds: Stocks: Portfolio (40% in bonds, 60% in stocks): 2. What is the risk for each investment? Bonds: Stocks Portfolio (40% in bonds, 60% in stocks): 3. Which investment do you prefer? A. Bonds B. Stocks C. Portfolio 4. Investors expect the market return this year to be 14%. A stock with a beta of .8 has an expected return of 12%. If the market return this year turns out to be 10% what s your best guess as to the rate of return on the stock? Suppose that the S&P500 has an expected return of 15% and T-bills provide a risk-free rate of596. 5, How to construct a portfolio from these two assets with an expected return of 12%? Weight for S&P500: Weight for T-bills: 6. How to construct a portfolio from these two assets with a beta of.4? Weight for S&P500: Weight for T-bills