Consider the following scenario analysis: Scenario Recession Normal economy Boom Probability 0.3 0.6 0.1 Rate of Return Bonds 12% 9 3 Stocks -5% 13 24 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? b. What are the expected rate of return and standard deviation of the portfolio?
Consider the following scenario analysis: Scenario Recession Normal economy Boom Probability 0.3 0.6 0.1 Rate of Return Bonds 12% 9 3 Stocks -5% 13 24 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? b. What are the expected rate of return and standard deviation of the portfolio?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:Consider the following scenario analysis:
Scenario
Recession
Normal economy
Boom
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?
b. What are the expected rate of return and standard deviation of the portfolio?
Required A
Probability
0.3
0.6
0.1
Required B
Recession
Normal economy
Boom
Rate of Return
Complete this question by entering your answers in the tabs below.
Stocks
-5%
13
24
Rate of Return
%
%
15.6 %
Bonds
12%
9
3
What is the rate of return on the portfolio in each scenario?
Note: Enter your answer as a percent rounded to 1 decimal place.
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