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Consider the following information on three stocks: Rate of Return If State OccursState of EconomyProbability of State of EconomyStock AStock BStock...

Consider the following information on three stocks:

 

  Rate of Return If State OccursState of EconomyProbability of State

of EconomyStock AStock BStock CBoom .20  .34  .46  .50 Normal .40  .25  .23  .20 Bust .40  .03  −.25  −.42 

 

a-1 If your portfolio is invested 35 percent each in A and B and 30 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 4.50 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 %

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