# Expected return and standard deviation of portfolio

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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%

Use the data above 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? Explain.

Please show all work.

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#### Solution Summary

The solution calculates the expected rate of return and standard deviation of a portfolio composed of bonds and stocks, given probability distribution of return on stocks and bonds.

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