Question
Consider the following information on a portfolio of three stocks: State of Economy Probability of State of Economy Stock A Rate of Return Stock B
Consider the following information on a portfolio of three stocks:
| State of Economy | Probability of State of Economy | Stock A Rate of Return | Stock B Rate of Return | Stock C Rate of Return |
| Boom | .15 | .05 | .21 | .18 |
| Normal | .80 | .08 | .15 | .07 |
| Recession | .05 | .12 | -.22 | -.02 |
The portfolio is invested 35 percent in each Stock A and Stock B and 30 percent in Stock C. If the expected T-bill rate is 3.90 percent, what is the expected risk premium on the portfolio? What is the standard deviation of the portfolio?
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Growth Linked Securities
Authors: John Williamson
1st Edition
3319683322,3319683330
