Question

consider the following information about three stocks:
state of economy.     probability of state of           
                                      economy
boom.                          0.20
normal.                        0.55
bust.                            0.25

rate of return if state occurs
stock A.           Stock B.           stock C
0.38.                  0.50.                0.50
0.16.                  0.14.                0.12
0.00.                -0.30.                -0.50

a-1. if your portfolio is invested 30%each in A and B and 40% in C, what is the portfolio expected return?
a-2. what is the variance?
a-3. what is the standard deviation?
b. if the expected T-bill rate is 3.70%,what is the expected risk premium on the portfolio?
c-1. if the expected inflation rate is 2.60%,what are the approximate and exact expected real returns on the portfolio?
c-2. what are the approximate and exact expected real risk premiums on the portfolio?

Answer 1