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Problem 13-23 Portfolio Returns and Deviations [LO2] Consider the following information about three stocks: Rate of Return If State Occurs State of Probability of Economy

Problem 13-23 Portfolio Returns and Deviations [LO2]

Consider the following information about three stocks:

Rate of Return If State Occurs
State of Probability of
Economy State of Economy Stock A Stock B Stock C
Boom .25 .22 .34 .56
Normal .48 .19 .17 .15
Bust .27 .03 .35 .44

a-1.

If your portfolio is invested 45 percent each in A and B and 10 percent in C, what is the portfolio expected return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

a-2. What is the variance? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.)
a-3. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b. If the expected T-bill rate is 3.90 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.)
c-1. If the expected inflation rate is 3.50 percent, what are the approximate and exact expected real returns on the portfolio? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
c-2. What are the approximate and exact expected real risk premiums on the portfolio? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

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