Consider the following information on a portfolio of three stocks: Probability of State Stock A Rate of Economy of Return State of Economy Boom Normal Bust .25 .60 .15 a. Expected return Variance Standard deviation b. Expected risk premium 0.10 % 0.00993 .04 .09 .15 0.10 % % Stock B Rate of Return a. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio's expected return? The variance? The standard deviation? Note: Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g., 16161. Enter your other answers as a percent rounded to 2 decimal places, e.g., 32.16. b. If the expected T-bill rate is 3.4 percent, what is the expected risk premium on the portfolio? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. .33 .13 -.14 Stock C Rate of Return .55 .19 -.28

Consider the following information on a portfolio of three stocks: Probability of State Stock A Rate of Economy of Return State of Economy Boom Normal Bust .25 .60 .15 a. Expected return Variance Standard deviation b. Expected risk premium 0.10 % 0.00993 .04 .09 .15 0.10 % % Stock B Rate of Return a. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio's expected return? The variance? The standard deviation? Note: Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g., 16161. Enter your other answers as a percent rounded to 2 decimal places, e.g., 32.16. b. If the expected T-bill rate is 3.4 percent, what is the expected risk premium on the portfolio? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. .33 .13 -.14 Stock C Rate of Return .55 .19 -.28

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 1Q

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