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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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