Chapter 5, Problem 8PS

You plan to invest $\text{\$}1,000$ in a corporate bond fund or in a common stock fund. The following table presents the annual return $\text{(Per}\text{\$}\text{1,000)}$ of each of these investments under various economic conditions and the probability that each of those economic conditions will occur.

Compute the

a. expected return for the corporate bond fund and the common stock fund.

b. standard deviation for the corporation bond fund and for the common stock fund.

c. Would you invest in the corporate bond fund or the common stock fund? Explain.

d. if you chose to invest in the common stock fund in $\left(\text{c}\right),$ what do you think about the possibility of losing $\text{\$}999$ of every $\text{\$}1,000$ invested if there is an extreme recession?