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Consider the following information on the returns on stock and bonds investment:  Scenario Profitability Stocks Bonds Recession .2 -5% +14% Normal Economy .6 +15% +8% Boom .2 +25% +4%  a) Calculate the expected rate of return and standard deviation in each investment.  b) Which investment would you prefer? Explain your answer. Show all of your working. Do not use Excel.

Consider the following information on the returns on stock and bonds investment:  Scenario Profitability Stocks Bonds Recession .2 -5% +14% Normal Economy .6 +15% +8% Boom .2 +25% +4%  a) Calculate the expected rate of return and standard deviation in each investment.  b) Which investment would you prefer? Explain your answer. Show all of your working. Do not use Excel.

EBK CFIN
EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter8: Risk And Rates Of Return
Section: Chapter Questions
Problem 18PROB
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Consider the following information on the returns on stock and bonds investment: 

Scenario Profitability Stocks Bonds
Recession .2 -5% +14%
Normal Economy .6 +15% +8%
Boom .2 +25% +4%

 a) Calculate the expected rate of return and standard deviation in each investment.

 b) Which investment would you prefer? Explain your answer.

Show all of your working. Do not use Excel.

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