Question

Consider the following information on three stocks:

				Rate of Return If State Occurs
State of Economy	Probability of State of Economy			Stock A			Stock B			Stock C
Boom		.25			.35			.40			.52
Normal		.50			.17			.15			.13
Bust		.25			.01			?.32			?.40

a-1 If your portfolio is invested 35 percent each in A and B and 30 percent in C, what is the portfolio expected return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Portfolio expected return            %

a-2 What is the variance? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 32.16161.)

Variance           

a-3 What is the standard deviation? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Standard deviation            %

b. If the expected T-bill rate is 3.70 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Expected risk premium            %

c-1 If the expected inflation rate is 3.30 percent, what are the approximate and exact expected real returns on the portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Approximate expected real return	%
Exact expected real return	%

c-2 What are the approximate and exact expected real risk premiums on the portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Approximate expected real risk premium	%
Exact expected real risk premium	%

Answer 1