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Consider the following information on a portfolio of three stocks: State of Probability of State Stock A Rate of Economy of Economy Return Stock
Consider the following information on a portfolio of three stocks: State of Probability of State Stock A Rate of Economy of Economy Return Stock B Rate of Return Stock C Rate of Return Boom Normal .15 04 .34 .48 .53 .12 .24 .22 Bust .32 .18 -.23 -.37 a. If your portfolio is invested 36 percent each in A and B and 28 percent in C, what is the portfolio's expected return, the variance, and 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 4.35 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. a. Expected return 6.94 % Variance 0.19200 Standard deviation 0.44 % b. Expected risk premium 2.59 %
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