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

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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.

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