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Consider the following information on a portfolio of three stocks: State of Economy Boom Normal Bust Probability of State of Economy .14 .55 .31 Stock
Consider the following information on a portfolio of three stocks: State of Economy Boom Normal Bust Probability of State of Economy .14 .55 .31 Stock A Rate of Return .07 .15 .16 Stock B Rate of Return .32 .17 -.16 Stock C Rate of Return .55 .25 -.35 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, and the standard deviation? (Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g., 32.16161. Enter your other answers as a percent rounded to 2 decimal places, e.g., 32.16.) % Expected return Variance Standard deviation % b. If the expected T-bill rate is 4 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected risk premium %
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