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 | .22 | .34 | .56 | ||||||||
| Normal | .48 | .19 | .17 | .15 | ||||||||
| Bust | .27 | .03 | -.35 | -.44 | ||||||||
a-1 If your portfolio is invested 45 percent each in A and B and 10 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 3.90 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 3.50 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 | % |
