State of the Economy | Probability Rate of Return If State Occurs | Stock A | Stock B | Stock C

Boom 0.35 0.20 0.35 0.60

Normal 0.50 0.15 0.12 0.05

Bust 0.15 0.01 -0.25 -0.50

a. If your portfolio is invested 30% each in A and B, and 40% in C, what is the portfolio's expected return? The variance? The standard deviation?

b. If the expected T-bill rate is 4.30%, what is the expected risk premium on the portfolio?

c. If the expected inflation rate is 3.60%, what are the approximate and exact expected real risk premiums on the portfolio?