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You plan to invest $1,000 in a corporate bond fund or in a common stock fund.

 8(A). You plan to invest​ $1,000 in a corporate bond fund or in a common stock fund. The information to the right about the annual return​ (per $1,000) of each of these investments under different economic conditions is​ available, along with the probability that each of these economic conditions will occur. Complete parts​ (a) through​ (c) below.


Probability

Economic condition

Corporate bond fund

Common stock fund

0.01

Extreme recession

-200

-999

0.09

Recession

-40

-300

0.20

Stagnation

20

-50

0.35

Slow growth

80

50

0.20

Moderate growth

100

200

0.15

High growth

120

350

a. Compute the expected return for the corporate bond fund and for the common stock fund.

The expected return for the corporate bond fund is

.

​(Round to two decimal places as​ needed.)

The expected return for the common stock fund is

.

​(Round to two decimal places as​ needed.)

b. Compute the standard deviation for the corporate bond fund and for the common stock fund.

The standard deviation for the corporate bond fund is

.

​(Round to two decimal places as​ needed.)

The standard deviation for the common stock fund is

.

​(Round to two decimal places as​ needed.)


c. Would you invest in the corporate bond fund or the common stock​ fund?

Explain.Based on the expected​ value, the

▼(a) common stock (b)corporate bond fund.

Since the standard deviation for the common stock fund is

▼(a) about the same as (b)more than three times greater than (c) less than half as much as

that for the corporate bond​ fund, the common stock fund

▼(a)has the same risk as (b)is riskier than (c)is safer than

the corporate bond fund and an investor

▼(a)should carefully weigh (b) doesn't need to consider

 the risk when making a decision.

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