Question

Consider the following information about three stocks:

				Rate of Return if State Occurs
State of	Probability of
Economy	State of Economy			Stock A			Stock B			Stock C
Boom		0.20			0.28			0.40			0.56
Normal		0.45			0.22			0.20			0.18
Bust		0.35			0.00		?	0.20		?	0.48

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? (Round your answer 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 final answer to 5 decimal places. (e.g., 32.16161))

Variance

a-3	What is the standard deviation? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Standard deviation

%

b.	If the expected T-bill rate is 4.20 percent, what is the expected risk premium on the portfolio? (Round your answer to 2 decimal places. (e.g., 32.16))

Expected risk premium

%

c-1	If the expected inflation rate is 3.80 percent, what are the approximate and exact expected real returns on the portfolio? (Round your answers 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? (Round your answers to 2 decimal places. (e.g., 32.16))

Approximate expected real risk premium	%
Exact expected real risk premium	%