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 _______% _______%