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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 0.25 0.32 0.44 0.60
Normal 0.40 0.24 0.22 0.20
Bust 0.35 0.02 ? 0.24 ? 0.40

a-1

If your portfolio is invested 30 percent each in A and B and 40 percent in C, what is the portfolio expected return? (Round your answer 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 final answer to 5 decimal places. (e.g., 32.16161))

Variance

a-3

What is the standard deviation? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Standard deviation %

b.

If the expected T-bill rate is 4.40 percent, what is the expected risk premium on the portfolio? (Round your answer to 2 decimal places. (e.g., 32.16))

Expected risk premium %

c-1

If the expected inflation rate is 4.00 percent, what are the approximate and exact expected real returns on the portfolio? (Round your answers 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? (Round your answers to 2 decimal places. (e.g., 32.16))

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

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