17. Scenario Anunlysis. Consider the following scenario analysis: (202) TONU amo Probability Scenario Recession Normal...
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17. Scenario Anunlysis. Consider the following scenario analysis: (202) TONU amo Probability Scenario Recession Normal economy Boom Rate of Return Stocks B onds -5% +14% +15% 1. Is it reasonable to assume that Treasury boods will provide higher returns In recessions than in booms? b. Calculate the expected rate of return and standard deviation for each investmeot c. Which iavestinent would you prefer? 18. Portfolio Aualysis. Use the data in the previous problem and consider a portfolio with weighits of .60 in stocks and 40 in bonds. (L03) 1. What is the rate of return on the portfolio in each scenario? b. What are the expected sale of return and standard deviation of the portfolio? c. Would you prefer to invest in the portfolio, in stocks only, or in bonds only? Note for 11-14, 11-17, 11-18: In order to be consistent with the examples in this chapter, perform calculations without correcting for the lost degree of freedom - i.e. divide the sum of the squared deviations by N (the number of observations), not N-1
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