Consider a portfolio with weights of .7 in stocks and .3 in bonds. What is the r
ID: 2753607 • Letter: C
Question
Consider a portfolio with weights of .7 in stocks and .3 in bonds.
What is the rate of return on the portfolio in each scenario? (Do not round intermediate calculations. Round your answers to 1 decimal place.)
What are the expected rate of return and standard deviation of the portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Expected rate of return = ______ %
Standard devation = _________ %
Which investment would be preferred? Portfolio, Bonds, or Stocks
RATE OF RETURN RATE OF RETURN SCENARIO PROBABILITY STOCKS BONDS Recession .30 -4% +16% Normal economy .50 +17% +10% Boom .20 +28% +9%Explanation / Answer
rate of return on the portfolio in Recession , Normal Economy and Boom:
Recession= weight of stock * stock return + weight of bond * bond return
= 0.7 * (-4%) + 0.3 * 16%
= -2.8 + 4.8
=2%
Normal Economy = weight of stock * stock return + weight of bond * bond return
= 0.7 * 17% + 0.3 * 10
=11.9 + 3
=14.9%
Boom = weight of stock * stock return + weight of bond * bond return
= 0.7 * 28% + 0.3 * 9%
= 19.6 + 2.7
=22.3%
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