You have constructed a portfolio made of 75% stocks and 25% bonds. The return on each...
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You have constructed a portfolio made of 75% stocks and 25% bonds. The return on each investment (and therefore, your portfolio) will depend on the state of the economy. You estimate the following probabilities and expected returns: Returns State of the economy Probability Stocks Bonds Strong Growth 25% 20% 2% Slow Growth 50% 5% 5% Recession 25% -8% 8% 1. What are the returns for your portfolio for each state of the economy? 2. What is the expected return for your portfolio? 3. What is the standard deviation of returns for the portfolio? You have constructed a portfolio made of 75% stocks and 25% bonds. The return on each investment (and therefore, your portfolio) will depend on the state of the economy. You estimate the following probabilities and expected returns: Returns State of the economy Probability Stocks Bonds Strong Growth 25% 20% 2% Slow Growth 50% 5% 5% Recession 25% -8% 8% 1. What are the returns for your portfolio for each state of the economy? 2. What is the expected return for your portfolio? 3. What is the standard deviation of returns for the portfolio?
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