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Question

Consider the following scenerio analysis:


Rate of

Return

Scenerio Probability Stocks Bonds

Recession .20 -6% 17%

Normal Economy .60 19 9

Boom .20 30 5


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

b)Calculate the expected rate of return and standard deviation for each investment.


Expected Rate of Return Standard Deviation

Stocks ?% ?%

Bonds ?% ?%

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