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Calculate the expected rate of return

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Reference no: EM131537211

Consider the following scenario:

Scenario                        Probability   Stocks         Bonds

Recession                        .20            -7%         20%

Normal Economy               .60            22%         11

Boom                              .20            33           7

a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms?

Yes   _____

No    _____

b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

                               Expected rate of return             Standard Deviation

Stocks                                _______%                              _______%

Bonds                                _______%                              _______%

Reference no: EM131537211

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