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Consider the following information about three stocks: State of Economy Probability of State of Economy 0.20 0.50 0.30 Boom Normal Bust Standard deviation Rate of
Consider the following information about three stocks: State of Economy Probability of State of Economy 0.20 0.50 0.30 Boom Normal Bust Standard deviation Rate of Return if State Occurs Stock C 0.50 0.06 -0.40 Stock A 0.26 0.10 0.01 a-1. If your portfolio is invested 30% each in A and B and 40% in C, what is the portfolio expected return? (Do not round intermediate calculations. Enter the answer as a percent rounded to 2 decimal places.) Portfolio expected return 1% a-2. What is the variance? (Do not round intermediate calculations. Round the final answer to 8 decimal places.) Variance a-3. What is the standard deviation? (Do not round intermediate calculations. Enter the answer as a percent rounded to 2 decimal places.) Approximate expected real return Exact expected real return % Stock B 0.38 0.08 -0.20 b. If the expected T-bill rate is 3.10%, what is the expected risk premium on the portfolio? (Do not round intermediate calculations. Enter the answer as a percent rounded to 2 decimal places.) Expected risk premium c-1. If the expected inflation rate is 2.00%, what are the approximate and exact expected real returns on the portfolio? (Do not round intermediate calculations. Enter the answers as a percent rounded to 2 decimal places.) % Approximate expected real risk premium Exact expected real risk premium % % c-2. What are the approximate and exact expected real risk premiums on the portfolio? (Do not round intermediate calculations. Enter the answers as a percent rounded to 2 decimal places.) % %
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