Consider the following scenario analysis:
Rate of Return
Scenario Probability Stocks Bonds
Recession 0.20 -5% 14%
Normal economy 0.60 15 8
Boom 0.20 25 4
Assume a portfolio with weights of .60 in stocks and .40 in bonds.
a. What is the rate of return on the portfolio in each scenario?
Rate of Return
Recession ______%
Normal economy _______%
Boom _______%
b. What are the expected rate of return and standard deviation of the portfolio?
Expected return ________%
Standard deviation ______%