Your employer has asked you to investigate the firms portfolio risk and return. The portfolio comprises three stocks. It is invested 50 percent in stock A, 30 percent in stock B and 20 percent in stock C. You gathered the following information: TABLE 1.

(a) Determine what is the portfolios expected return. (8 marks) (b) Determine the portfolios variance and standard deviation. (8 marks) (c) Assume that the expected risk-free rate is 2.75 percent. Determine the expected risk premium on the portfolio.

TABLE 1. Fim Portfolio Data - Expected retums on component stocks (%) in function of the state of the economy Probability of State of Rate of Return (%) for each State of the Economy State of the Economy the Foonomy Stock A 60.00% Good Poor 3.00% 15.00% Stock B 34.00% -12.00% Stock C 70.00% -35.00% 40.00%