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

  • No

  • Yes

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 % %

c. Which investment would you prefer?

Stock Bond
Which investment would you prefer?

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