Question: 15% 30% 5% Question 4 (Total 25 marks) Consider the following scenario analysis: Rate of return Scenario Probability Stocks Bonds Recession 0.25 -8% 13% Normal

15% 30% 5% Question 4 (Total 25 marks) Consider the following scenario analysis: Rate of return Scenario Probability Stocks Bonds Recession 0.25 -8% 13% Normal 0.35 8% Boom 0.40 A) Calculate the expected rate of return and standard deviation of each investment. (8 marks) B) Consider a portfolio with weights of 70% in stock and 30% in bonds. (i) What is the expected rate of return on the portfolio in each scenario? (6 marks) (ii) What are the expected rate of return and standard deviation of the portfolio? (6 marks) (iii) Explain with reason what investment you would invest, i.e. in the portfolio, in stocks only, or in bonds only

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