Consider the following information on three stocks:

a. If your portfolio is invested 25 percent each in A and B and 50 percent in C, what is the portfolio expected return? The variance? The standard deviation?

b. If the expected T-bill rate is 4.10 percent, what is the expected risk premium on the portfolio?

c. If the expected inflation rate is 3.50 percent, what are the approximate and exact expected real returns on the portfolio? What are the approximate and exact expected real risk premiums on the portfolio?

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Rate of Return If State Occurs Probability of State of Economy State of Economy Stock A Stock B Stock C Boom .30 .26 .33 .50 Normal .55 .14 .15 .02 Bust .15 -.03 -.18 -45