Question: Using the table below and consider a portfolio with weights of 60% in stocks and 40% in bonds. Scenario Probability Stocks Bonds Recession 20% -5%

Using the table below and consider a portfolio with weights of 60% in stocks and 40% in bonds.

Scenario Probability Stocks Bonds
Recession

20%

 -5% +14%
Normal Economy 60% +15% +8%
Boom 20% +25% +4%

A. What is the rate of return on the portfolio in each scenario?

B. What are the expected rate of return and standard deviation of the portfolio?

C. Would you prefer to invest in the portfolio, in stocks only, or in bonds only?

ALL work must be in Excel

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