(b) A portfolio consists of 40 percent investment each in stock A and B, and the...
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(b) A portfolio consists of 40 percent investment each in stock A and B, and the balance 20 percent is invested in Stock C. The information of these three stocks is given as below: State of Probability of State of Rate of Returns if States Occur Economy Stock A Stock B Stock C Economy Boom 0.35 0.25 0.19 0.09 Normal 0.4 0.17 0.17 0.07 Bust 0.25 -0.14 -0.09 0.11 (i) Compute the expected risk premium on the portfolio if the expected T-bill rate is 3.5 percent. (6 Marks) (ii) Calculate the differences in the expected returns between Stock A and Stock C, and between Stock B and Stock C. (6 marks) (b) A portfolio consists of 40 percent investment each in stock A and B, and the balance 20 percent is invested in Stock C. The information of these three stocks is given as below: State of Probability of State of Rate of Returns if States Occur Economy Stock A Stock B Stock C Economy Boom 0.35 0.25 0.19 0.09 Normal 0.4 0.17 0.17 0.07 Bust 0.25 -0.14 -0.09 0.11 (i) Compute the expected risk premium on the portfolio if the expected T-bill rate is 3.5 percent. (6 Marks) (ii) Calculate the differences in the expected returns between Stock A and Stock C, and between Stock B and Stock C. (6 marks)
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