Question
Consider the following information about three stocks: If your portfolio is invested 40 percent each in A and B and 20 percent in C, what
Consider the following information about three stocks:
If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio expected return? The variance? The standard deviation?
If the expected T-bill rate is 3.80 percent, what is the expected risk premium on the portfolio?
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?
| State of Economy | Probability | Stock A | Stock B | Stock C |
| Boom | 20% | 24% | 36% | 55% |
| Normal | 55% | 17% | 13% | 9% |
| Bust | 25% | 0% | -28% | -45% |
|
|
|
|
|
|
| Proportion invested |
| 40% | 40% | 20% |
| T-Bill rate | 3.80% |
|
|
|
| Expected inflation | 3.50% |
|
|
|
| a) | |
| E(Rp) |
|
| Variance |
|
| Standard deviation |
|
| b) | |
| Risk premium |
|
| c) | |
| Approximate real return |
|
| Exact real return
|
|
| Approximate real risk premium |
|
| Exact real risk premium |
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Entrepreneurship
Authors: Andrew Zacharakis, William D Bygrave
5th Edition
9781119563099
