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Problem 11-25 Portfolio Returns and Deviations [LO 1, 2] Consider the following information on a portfolio of three stocks State of Economy Boom Normal Bust
Problem 11-25 Portfolio Returns and Deviations [LO 1, 2] Consider the following information on a portfolio of three stocks State of Economy Boom Normal Bust Stock C Rate of Return 42 .28 Stock A Rate of Return Probability of State of Economy 13 52 .35 Stock B Rate of Return .35 .30 -.29 10 19 .38 a. If your portfolio is invested 42 percent each in A and B and 16 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 retum Variance Standard deviation 25.33 0% .74 0% b. If the expected T-bill rate is 4.65 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 20.680 %
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