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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 | .20 | .38 | .50 | .54 | ||||||||
Normal | .50 | .21 | .16 | .13 | ||||||||
Bust | .30 | .05 | .28 | .45 | ||||||||
a-1. | If your portfolio is invested 35 percent each in A and B and 30 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 4.70 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 4.20 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.) |
a-1.Portfolio expected return%
a-2.Variance
a-3.Standard deviation%b.Expected risk premium%
c-1.Approximate expected real return%Exact expected real return%
c-2.Approximate expected real risk premium%
Exact expected real risk premium%
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