# solution

Consider the following information on three stocks:

 Rate of Return If State Occurs State of Economy Probability of Stateof 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.)
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 %

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