Explore BrainMass

Explore BrainMass

    Investment Analysis: Return on Stocks and Bonds

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Consider the following scenario analysis:
    Rate of Return
    Scenario 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 a recession than in booms? Why?
    b) Calculate the expected rate of return and standard deviation for each investment.
    c) Which investment would you prefer?

    © BrainMass Inc. brainmass.com March 4, 2021, 6:23 pm ad1c9bdddf

    Solution Preview

    a. Interest rates rise during booms and fall during recessions: that is, interest rates are procyclical. ...

    Solution Summary

    The expected rate of return and standard deviation for the investment in bonds and stocks are calculated, given the probability distribution of return. Parts b. and c. are calculated in an Excel file which is attached.