Consider the following information about three stocks:

State of probability rate of return rate of return rate of return

the economy of state Stock A Stock B Stock C

Boom 0.25 +0.20 +0.25 +0.60

Normal 0.55 +0.15 +0.11 +0.05

Bust 0.20 +0.01 -0.15 -0.50

Part A: If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio expected return? The variance? The standard deviation?

Part B: If the expected T-Bill rate is 3.50 percent, what is the expected risk premium on the portfolio?

Part C: If the expected inflation rate is 3.50 percent, what are the approximate and expected real returns on the portfolio? What are the approximate the exact expected real risk premiums on the portfolio?