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Consider the following information on a portfolio of three stocks: State of Probability of Stock A Stock B Stock C Economy State of Economy Rate
Consider the following information on a portfolio of three stocks:
State of | Probability of | Stock A | Stock B | Stock C | ||||||||
Economy | State of Economy | Rate of Return | Rate of Return | Rate of Return | ||||||||
Boom | .14 | .11 | .36 | .51 | ||||||||
Normal | .51 | .19 | .21 | .29 | ||||||||
Bust | .35 | .20 | .20 | .39 | ||||||||
a. If your portfolio is invested 44 percent each in A and B and 12 percent in C, what is the portfolios expected return, the variance, and the standard deviation?
Expected return | % | |
Variance | ||
Standard deviation | % | |
b. If the expected T-bill rate is 4.2 percent, what is the expected risk premium on the portfolio?
Expected risk premium %
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