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    Portfolio analysis

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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 in the 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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