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2 years ago

Consider the following scenario analysis:

Business

1 answer:

seropon [69]2 years ago

3 0

Based on the scenario analysis on stocks and bonds, we know the following:

Treasury bonds will provide a higher return in a recession than in a boom.
The expected return of Bonds is 9.8% and that of stocks is 11.6%.
The standard deviation of Bonds is 9.24% and that of stock is 11.76%.

<h3>What does the scenario analysis on Bonds and Stocks show?</h3>

In a recession, Bond returns will be 15%. This is much higher than Bond returns in a boom of only 5%.

The expected return on bonds will be:

= ∑(Probability of Scenario x Returns in scenario)

= (0.30 x 15%) + (0.60 x 8%) + (0.10 x 5%)

= 9.8%

The expected return on stocks will be:

= (0.30 x -6%) + (0.60 x 18%) + (0.10 x 26%)

= 11.6%

Using a spreadsheet, you can input the expected returns of the stocks and the bonds to find the standard deviation to be 9.24% and 11.76%, respectively.

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Ber [7]

Answer:

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