Probability Economic Condition Corporate Bond fund Common Stock fund 0.01 depression -200 - 999 0.09 recession -70 -300 0.15 recovery 30 -100 0.35 slow growth 80 100 0.30 moderate growth 100 150 0.10 high growth 120 350
You plan to invest $1,000 in a corporate bond fund or in a common stock fund. The following table represents the annual return (per $1,000) of each of these investments under various economic conditions and the probability that each of those economic conditions will occur.
Compute the expected return for the corporate bond and for the common stock fund. Show your calculations on excel for expected returns.
Compute the standard deviation for the corporate bond fund and for the common stock fund.
Would you invest in the corporate bond fund or the common stock fund? Explain.
If choose to invest in the common stock fund and in (c), what do you think about the possibility of losing $999 of every $1,000 invested if there is depression. Explain.
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