Case Analysis. Let the following scenario analysis:
Rate of Return
Scenario Probability Stocks Bonds
.20 -5% +14%
.60 +15 +8
.20 +25 +4
a. Is it sensible to suppose that Treasury bonds will give higher returns in recessions than in booms?
b. Compute expected rate of return and standard deviation for each investment.
c. Which investment would you favour?