Question
Problem 11-25 Portfolio Returns and Deviations [LO 2] Consider the following information on a portfolio of three stocks: State of Economy Probability of State of
Problem 11-25 Portfolio Returns and Deviations [LO 2]
Consider the following information on a portfolio of three stocks: |
State of Economy | Probability of State of Economy | Stock A Rate of Return | Stock B Rate of Return | Stock C Rate of Return |
Boom | .13 | .02 | .32 | .50 |
Normal | .55 | .10 | .22 | .20 |
Bust | .32 | .16 | .21 | .35 |
Required: | |
(a) | If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolios 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) and input your other answers as a percentage rounded to 2 decimal places (e.g., 32.16).) |
Expected return | % |
Variance | |
Standard deviation | % |
(b) | If the expected T-bill rate is 4.25 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
Expected risk premium | % |
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