expected rate of return and standard deviation for each investment

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I need your help finding the answers to these questions with the following data:

Considering the following Scenario Analysis:

RATE OF RETURN
Scenerio Probability Stocks Bonds
Recession .20 -5% +14%
Normal economy .60 +15 +8
Boom .20 +25 +4

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

b.How do I calculate the expected rate of return and standard deviation for each investment?

c. Which investment would you prefer?

Can you help me with the meaning of abbreviations and formulas if used and a brief description on each of the above questions.

Thank you your help is GREATLY appreciated.

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Solution Preview

a. Is it reasonable to assume that Treasury Bonds will provide higher returns in recessions than in booms?
The expected return of bonds during recession is 0.20*14% = 2.8%
and the ...

Solution Summary

Accounting scenarios are included.

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