Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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 | .26 | .26 | .38 | .55 | ||||||||
Normal | .50 | .21 | .19 | .17 | ||||||||
Bust | .24 | .05 | .38 | .46 | ||||||||
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? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
a-2. | What is the variance? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) |
a-3. | What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
b. | If the expected T-bill rate is 4.10 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
c-1. | If the expected inflation rate is 3.70 percent, what are the approximate and exact expected real returns on the portfolio? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
c-2. | What are the approximate and exact expected real risk premiums on the portfolio?(Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
|
I do not know how to upload my ecel sheet so you can see my calculations. but I would like to have the formulas in excel to show me how to calculate the answers for A2, A3, and both of C2. Thanks you!
35% | 30% | |||||||||
State of Economy | Probibility of State of Economy | Return on Stock A | Return on Stock B | Return on Stock C | Expected Return A | Expected Return B | Expected Return C | |||
(a) | (b) | (c) | (d) | (a*b) | (a*c) | (a*d) | ||||
Boom | 0.26 | 0.26 | 0.38 | 0.55 | 0.0676 | 0.0988 | 0.1430 | 0.2980 | 29.80% | BOOM |
Normal | 0.50 | 0.21 | 0.19 | 0.17 | 0.1050 | 0.0950 | 0.0850 | 0.1175 | 11.75% | NORM |
Bust | 0.24 | 0.05 | -0.38 | -0.46 | 0.0120 | -0.0912 | -0.1104 | -0.0965 | -9.65% | BUST |
Total | 0.1846 | 0.1026 | 0.1176 | |||||||
Weight of Stocks | 0 | 0.03591 | 0.03528 | |||||||
Exp Return on Port | 0.07119 | 13.58% | ||||||||
9-A-2&3 | ||||||||||
State of Economy | Probibility of State of Economy | Market Return | (Market Return)^2 (C)^2 | Expected Return * (Market return)^2 (b*d) | Expected Return (b*c) | |||||
(a) | (b) | (C) | (d) | (e) | (f) | |||||
Boom | 0.26 | 0.2050 | 0.042025 | 0.010927 | 0.053300 | |||||
Normal | 0.5 | 0.1305 | 0.017030 | 0.008515 | 0.065250 | |||||
Bust | 0.24 | -0.0965 | 0.009312 | 0.002235 | -0.023160 | |||||
Total | 1 | 0.021677 | 0.095390 | |||||||
Varience | 0.24802 | 24.8024% | ||||||||
Standard Devation | 0.498020 | 49.80% | c |
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