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Consider the following information on three stocks:
Consider the following information on three stocks:
Rate of Return If State Occurs_____
State of Economy Probability of State
of Economy Stock A Stock B Stock C
Boom .25 .32 .44 .60
Normal .40 .24 .22 .20
Bust .35 .02 −.24 −.40
a-1 If your portfolio is invested 30 percent each in A and B and 40 percent in C, what is the portfolio expected return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Portfolio expected return ________ %
a-2 What is the variance? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 32.16161.)
Variance __________
a-3 What is the standard deviation? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Standard deviation ________%
b. If the expected T-bill rate is 4.40 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Expected risk premium ________%
c-1 If the expected inflation rate is 4.00 percent, what are the approximate and exact expected real returns on the portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Approximate expected real return _____%
Exact expected real return _______%
c-2 What are the approximate and exact expected real risk premiums on the portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Approximate expected real risk premium ______ %
Exact expected real risk premium _______ %
