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 | .25 | .36 | .48 | .52 | ||||||||
Normal | .44 | .20 | .15 | .12 | ||||||||
Bust | .31 | .04 | .26 | .44 | ||||||||
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 4.60 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 4.10 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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