Discuss the following:
Q: Portfolio Analysis. Use the data in the previous 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?
d.) Calculate the expected rate of return and standard deviation for each investment.
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Rate of Return
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Scenario
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Probability
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Stocks
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Bonds
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Recession
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.20
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-5%
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+14%
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Normal economy
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.60
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+15
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+8
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Boom
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.20
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+25
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+4
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