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Explain the benefit of diversification

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Reference no: EM132531689

Consider the following scenario analysis:

Rate of ReturnScenarioProbabilityStocksBondsRecession0.3-4%12%Normal economy0.413 7 Boom0.322 3

Assume a portfolio with weights of 0.60 in stocks and 0.40 in bonds.

a. What is the rate of return on the portfolio in each scenario? (Enter your answer as a percent rounded to 1 decimal place.)

b. What are the expected rate of return and standard deviation of the portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c. Would you prefer to invest in the portfolio, in stocks only, or in bonds only? Explain the benefit of diversification.

Reference no: EM132531689

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