Question
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 | 0.20 | 0.34 | 0.46 | 0.50 | ||||||||
Normal | 0.40 | 0.25 | 0.23 | 0.20 | ||||||||
Bust | 0.40 | 0.03 | ? | 0.25 | ? | 0.42 | ||||||
a-1 | If your portfolio is invested 35 percent each in A and B and 30 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 4.50 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 | % |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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