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    Rate of return on the portfolio in each scenario

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    Portfolio Analysis (LO3)

    Rate of Return
    Scenario Probability Stocks Bonds
    Recession .20 −3% +18 %
    Normal economy .60 +19 +9
    Boom .20 +28 +5

    Consider a portfolio with weights of .6 in stocks and .4 in bonds.

    a. What is the rate of return on the portfolio in each scenario? (Do not round intermediate calculations. Round your answers to 1 decimal place.)

    Scenario Rate of Return
    Recession _________%
    Normal economy _______%
    Boom _________%

    b. What are the expected rate of return and standard deviation of the portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places).

    Expected rate of return _________%
    Standard deviation ____________%.

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    Solution helps in estimating rate of return on the portfolio in each scenario.

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