what is Award: 10.00 points Rate of Return Scenario Recession Normal economy Pro

Question

what is Award: 10.00 points Rate of Return Scenario Recession Normal economy Probability Stocks Bonds +16% -4% +18 +29 .20 2 Boom 30 +6 Consider a portfolio with weights of.6 in stocks and 4 in bonds. a. What is the rate of return on the portfolio in each scenario? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Scenario Rate of Return Recession Normal economy Boom b. 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.)

Explanation / Answer

Scenario Probability Rate of Return Stocks Bonds Recession 0.2 -4% 16% Normal 0.5 18% 9% Boom 0.3 29% 6% Portfolio Weight of Stocks 60% Weight of Bonds 40% a Rate of Return on the Portfolio= Weighted average Scenario Return on Stock Return on Bond Working Expected Return in % Recession -4% 16% 0.6*Return on stock+ 0.4*Return on bond 4.00 Normal 18% 9% 0.6*Return on stock+ 0.4*Return on bond 14.40 Boom 29% 6% 0.6*Return on stock+ 0.4*Return on bond 19.80 b Rate of Return on the Portfolio= Weighted average Scenario Return on Stock Return on Bond Working Expected Return from portfolio % Probability Expected return Recession -4% 16% 0.6*Return on stock+ 0.4*Return on bond 4.00 0.2 0.8 Normal 18% 9% 0.6*Return on stock+ 0.4*Return on bond 14.40 0.5 7.2 Boom 29% 6% 0.6*Return on stock+ 0.4*Return on bond 19.80 0.3 5.94 Total 13.94

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