Consider the following information on a portfolio of three stocks: State of Probability of Stock A Rate of Economy State of Economy Return Boom Normal Bust .15 .52 .33 .10 .18 .19 Stock B Rate of Return .35 .20 -.19 Stock C Rate of Return .52 .28 -.38 a. If your portfolio is invested 42 percent each in A and B and 16 percent in C, what is the portfolio's expected return, the variance, and 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 4.15 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. Expected return

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Raghubhai 

Consider the following information on a portfolio of three stocks:
State of
Probability of Stock A Rate of
Economy State of Economy
Return
Boom
Normal
Bust
.15
.52
.33
.10
Stock B Rate of
Return
.35
Stock C Rate of
Return
.52
.18
.20
.28
.19
.19
-.38
a. If your portfolio is invested 42 percent each in A and B and 16 percent in C, what is the portfolio's expected return, the variance, and
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 4.15 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.
a. Expected return
Variance
Standard deviation
b. Expected risk premium
%
%
%
Transcribed Image Text:Consider the following information on a portfolio of three stocks: State of Probability of Stock A Rate of Economy State of Economy Return Boom Normal Bust .15 .52 .33 .10 Stock B Rate of Return .35 Stock C Rate of Return .52 .18 .20 .28 .19 .19 -.38 a. If your portfolio is invested 42 percent each in A and B and 16 percent in C, what is the portfolio's expected return, the variance, and 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 4.15 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. a. Expected return Variance Standard deviation b. Expected risk premium % % %
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