Question

				Rate of Return If State Occurs
State of	Probability of
Economy	State of Economy			Stock A			Stock B				Stock C
Boom		.25			.21				.33				.55
Normal		.60			.17				.11				.09
Bust		.15			.00			−	.21			−	.45

  

a-1.	If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio expected return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a-2.	What is the variance? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.)
a-3.	What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b.	If the expected T-bill rate is 3.80 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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 and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
c-2.	What are the approximate and exact expected real risk premiums on the portfolio?(Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1