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I know how to do everything except the red line. please just explain where those values come from!!! 101 Consider the following information on three
I know how to do everything except the red line. please just explain where those values come from!!!
101 Consider the following information on three stocks: tate of Econom Probability of State of Econom Boom Normal Bust 0.45 0.50 0.05 Stock A 0.42 0.31 0.17 Rate of Return if State Occurs Stock B 0.35 0.18 Stock C 0.65 0.04 0.17 0.64 A portfolio is invested 35 percent each in Stock A and Stock B and 30 percent in Stock C. What is the expected risk premium on the portfolio if the expected T-bill rate is 3.3 percent? A. 11.47 percent B. 12.38 percent C. 16.67 percent D. 24.29 percent E. 25.82 percent E(Rp)Boom - 0.35(0.42) + 0.35(0.35) + 0.30(0.65) -0.464!5 :0.35(0.31) + 0.35(0.18) + 0.30(0.04) = 0.1835 Normal E(R)Bust = 0.35(0.17) + 0.35(-0.17) + 0.30(-0.64) =-0.192 E(R) = 0.45(0.51) + 0.50(0.229) + 0.05(-0.122) = 0.2912 RP = 0.2912-0.033 29.99 percent
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