Consider the following information on three stocks:

A portfolio is invested 30 percent each in Stock A and Stock B and 40 percent in Stock C. Calculate:

a)the expected return on the portfolio

b)the standard deviation of the portfolio

c)the expected risk premium on the portfolio if the expected T-bill rate is 4 percent.

Table Probability of state of economy Rate return

stock A STOCK B STOCK C

Boom 0.45 0.55 0.35 0,65

Normal 0.50 0.44 0.18 0.04

Bust 0.05 0.05 -0.17 -0.64