Question: Use the data in the scenario analysis from Problem 14 and consider a portfolio with weights of .60 in stocks and .40 in bonds. In

Use the data in the scenario analysis from Problem 14 and consider a portfolio with weights of .60 in stocks and .40 in bonds.

In problem 14

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? Explain the benefit of diversification.

Rate of Return Probability Stocks Bonds Scenario Recession Normal economy Boom 0.20 0.60 0.20 -5% +15 +25 +14% +8 +4

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