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Consider the following information about three stocks: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B

Consider the following information about three stocks:

Rate of Return If State Occurs
State of Probability of
Economy State of Economy Stock A Stock B Stock C
Boom .30 .27 .32 .55
Normal .40 .23 .18 .15
Bust .30 .01 .32 .48

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. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Portfolio expected return %

a-2

What is the variance? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 32.16161.)

Variance

a-3

What is the standard deviation? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Standard deviation %

b.

If the expected T-bill rate is 4.90 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Expected risk premium %

c-1

If the expected inflation rate is 4.40 percent, what are the approximate and exact expected real returns on the portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Approximate expected real return %
Exact expected real return %

c-2

What are the approximate and exact expected real risk premiums on the portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Approximate expected real risk premium %
Exact expected real risk premium %

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