You are investing in stocks and bonds. Assume the following:

• the stocks have a long-term average net return of 6.5%, net of inflation, with a standard deviation of 19.5%.
• 10-year treasury bonds have a long-term average net return of 1.7%, with a standard deviation of 7.5%.
• the correlation between stock and bond returns in any given year is 0.3

Suppose that you start with $10,000, and that you allocate 60% of your money to stocks (with the remaining 40% to bonds). Use Monte Carlo simulation to answer the following questions:

1. What are the mean and standard deviation of simulated wealth after 40 years, assuming that stocks and bonds have a correlation of -0.3?
2. What if stocks and bonds instead have a positive correlation of 0.3?

In each case, assume that you rebalance your portfolio every year to retain the target 60/40 allocation.

The same script that you build for this case study can be used to investigate any set of assumptions about the statistical properties of future stock/bond returns.

*If possible, please use R and post code along with answer