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    Expected rate of return and standard deviation

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    Need some assistance on the following problem. Have an exam and this is a sample problem I cannot figure out. Please include all formulas so I can get a better grasp on this topic.
    RATE OF RETURN
    Scenario Probabiltiy Stocks Bonds

    Recession .20 -5% +14%

    Normal .60 +15% +8%

    Boom .20 +25% +4%

    18. Portfolio Analysis. Use the data in the previous
    problem and consider a portfolio with weights of .60 in
    stocks and .40 in bonds.
    a. What is the rate of return on the portfolio in
    each scenario?
    b. What is the expected rate of return and
    standard deviation of the portfolio?
    c. Would you prefer to invest in the portfolio, in
    stocks only, or in bonds only?

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    Solution Preview

    Need some assistance on the following problem. Have an exam and this is a sample problem I cannot figure out. Please include all formulas so I can get a better grasp on this topic.
    ...

    Solution Summary

    This explains the computation of expected rate of return and standard deviation of the portfolio

    $2.19

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