Use the data in the previous problem and consider a portfolio with weights of 0.70 in stocks and 0.30 in bonds.

Scenario Probability Stocks Bonds

Recession 0.30 -6 % +15%

Normal Economy 0.30 +14 + 7

Boom 0.40 +26 +5

1. What is the rate of return on the portfolio in each scenario?
2. What is the expected rate of return and standard deviation of the portfolio?

c. Would you prefer to invest being a risk averse investor in the portfolio, in stocks only, or in bonds only?