Question: Problem 11-13 Scenario Analysis (LO2) Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 7 % 20 % Normal economy

Problem 11-13 Scenario Analysis (LO2)

Consider the following scenario analysis:

		Rate of Return
Scenario	Probability	Stocks		Bonds
Recession	0.20	7	%	20	%
Normal economy	0.60	22	%	11	%
Boom	0.20	33	%	7	%

a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms?

multiple choice

b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

	Expected Rate of Return		Standard Deviation
Stocks		%		%
Bonds		%		%

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