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 0.25 0.34 0.46 0.58

Normal 0.50 0.14 0.12 0.10

Bust 0.25 0.05 0.26 0.46

a-1. If your portfolio is invested 20% each in A and B and 60% 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 %

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.)

Standard deviation %

b. If the expected T-bill rate is 3.50%, 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 2.40%, 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 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 the answers as a percent rounded to 2 decimal places.)

Approximate expected real risk premium %

Exact expected real risk premium %