Project Evaluation help
Scenario Analysis. 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
a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms?
b. Evaluate the expected rate of return and standard deviation for each investment.
c. Which investment would you prefer?