1. Consider the following information on the portfolio of three stocks.

returns

state	probability	Stock A	Stock B	Stock C
boom	10%	5%	30%	50%
normal	55%	10%	10%	20%
bust	35%	15%	-10%	-25%

a. Assuming your portfolio is invested 40% in Stock A, 30% in Stock B, and 30% in Stock C., what is the portfolio's expected return? The variance and standard deviation?

b. If the expected T-bill rate is 3%, what is the expected risk premium on the portfolio?

2. You have decided to invest in an equally-weighted portfolio of AT&T, Apple, Proctor & Gamble, and JPM Chase. Using finance.yahoo.com to find the ticker for each company and their betas. Also, use the 13-week T-bill rate for the risk-free rate.

a. Calculate the beta of the portfolio.

b. Using the average large-company stock return from 1960-2017 to estimate the market risk premium, calculate the expected return for each of the four stocks. Also, calculate the expected return for the equally-weighted portfolio.

3. Suppose the expected return on the market is 13% and the risk-free rate is 5%. You own a stock where the expected return is 12% and the stocks beta is 1.25. What do you expect to happen to the price of your stock and why?