What is the rate of return on the portfolio in each scenario

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Reference no: EM132756891

Question - Consider the following scenario analysis:

Rate of Return

Scenario

Probability

Stocks

Bonds

Recession

0.3

-4%

12%

Normal economy

0.4

13%

7%

Boom

0.3

22%

3%

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

Required - Using the above table, answer questions A, B and C below.

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: EM132756891

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