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Consider the following information on a portfolio of three stocks: Probability of State Stock A Rate of Stock B Rate of Stock C Rate

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Consider the following information on a portfolio of three stocks: Probability of State Stock A Rate of Stock B Rate of Stock C Rate State of Economy Boom Normal Bust of Economy .25 Return .04 Return of Return .33 .55 .60 .15 .09 .13 .19 .15 -.14 -.28 13 a. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio's expected return? The variance? The standard deviation? Note: Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g., .16161. Enter your other answers as a percent rounded to 2 decimal places, e.g., 32.16. b. If the expected T-bill rate is 3.4 percent, what is the expected risk premium on the portfolio? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Answer is complete but not entirely correct. a. Expected return Variance Standard deviation b. Expected risk premium 11.14% 0.01052 X 10.26% 7.19%

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