You plan to invest $1,000 in a corporate bond fund or in a common stock fund. The following information about the annual return (per $1,000) of each of these investments under different economic conditions is available, along with the probability that each of these economic conditions will occur:

Compute the
a. expected return for the corporate bond fund and for the common stock fund.
b. standard deviation for the corporate bond fund and for the common stock fund.
c. covariance of the corporate bond fund and the common stock fund.
d. Would you invest in the corporate bond fund or the common stock fund? Explain.
e. If you chose to invest in the common stock fund in (d), what do you think about the possibility of losing $999 of every $1,000 invested if there is an extreme recession?

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Corporate Common Bond Fund Stock Fund Economic Probability Condition 0.01 0.09 0.15 Stagnation 0.35 0.30 Moderate growth 0.10 High growth Extreme recession Recession 200 30 80 100 120 -999 -300 -100 100 150 350 Slow growth