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Consider the following information about three stocks: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B
Consider the following information about three stocks: |
State of Economy | Probability of State of Economy | Rate of Return if State Occurs | ||
---|---|---|---|---|
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 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 4.60 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 4.10 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. |
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