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 .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.) a-1. Portfolio expected return % a-2. Variance a-3. Standard deviation % b. Expected risk premium % c-1. Approximate expected real return % Exact expected real return % c-2. Approximate expected real risk premium % Exact expected real risk premium
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