Scenario analysis $-$ Example

Consider a broad stock index and its projected holding

period returns under a variety of different economic

conditions over the next year:

E$($r$)$ & Std$.$ Dev.?

Including the risk$-$free rate

Assume that you can also invest in a safe investment

$($for example, a T$-$Bill$)$ at the risk$-$free rate $r_F$

How much should you invest into the risky asset, and

how much into the risk$-$free asset?

Depends on two things: