State of Economy Boom Normal Bust a-2. a-3. b. Probability of State of Economy .25 .50 .25 Rate of Return if State Occurs Stock A .35 17 .01 Stock B .40 15 -.32 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.) What is the variance? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) 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.) If the expected T-bill rate is 3.70 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 3.30 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.) Stock C .52 13 -.40

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 3.70 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 3.30 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.) Answer is not complete. \begin{tabular}{|l|r|l|} \hline a-1. Portfolio expected return & 9.50X & % \\ \hline a-2. Variance & 0.02547 & \\ \hline a-3. Standard deviation & 15.96 & % \\ \hline b. Expected risk premium & 14.09 & % \\ \hline c-1. Approximate expected real return & 14.49 & % \\ \hline c-1. Exact expected real return & & % \\ \hline c-2. Approximate expected real risk premium & & % \\ \hline c-2. Exact expected real risk premium & & % \\ \hline \end{tabular}