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

%