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Determine the rate of return on the portfolio

Question: Consider the following scenario analysis:

Rate of Return

Scenario Probability Stocks Bonds
Recession .20 -5% +14%
Normal economy .60 +15 +8
Boom .20 +25 +4

Use the data in the problem and consider 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?

b. What is the expected rate of return and standard deviation of the portfolio?

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

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Finance Basics: Determine the rate of return on the portfolio

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