Consider the following information about three stocks:

State of Economy Boom	Probability of State of Economy	Rate of Return if State Occurs
		Stock A	Stock B	Stock C
	0.20	0.28	0.40	0.56
Normal	0.45	0.22	0.20	0.18
Bust	0.35	0.00	-0.20	-0.48

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

8.65

%

I

a-2. What is the variance? (Do not round intermediate calculations. Round the final answer to 8 decimal places.)

Variance

0.06902

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

26.27

0%

b. If the expected T-bill rate is 4.40%, 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

4.25

0%

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

.6.25

6.10

0 %

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