You decide to invest in a portfolio consisting of 25 percent Stock A, 25 percent Stock B, and the remainder in Stock C. Based on the following information, what is the expected return of your portfolio?  State of Economy Probability of State Return if State Occurs of Economy Stock A Stock B Stock C Recession   .17   - 15.4 % - 2.2 % - 21.1 % Normal   .50     11.6 %   6.8 %   15.4 % Boom   .33     25.2 %   14.1 %   30.0 %     Multiple Choice   12.87%   12.34%   15.21%   13.95%    11.80%

Consider the following information in Figure 1 below for a portfolio including security A and security B:              Figure 1 State of the economy Probability of state of economy Return on A (%) Return on B (%) Boom 0.2 15 5 Growth 0.2 -5 0 Normal 0.5 10 10 Recession 0.1 5 20   If you want to include one more security C into the above portfolio. (e.g., a new portfolio including securities A, B, and C), what is the new portfolio variance if you invest 40% of C and 60% of the old portfolio including A and B (50% weights for A and B)?  Assume the standard deviation of C is 10%, and correlation coefficient between the old portfolio and C is 0.8.

You decide to invest in a portfolio consisting of 26 percent Stock A, 49 percent Stock B, and the remainder in Stock C. Based on the following information, what is the variance of your portfolio? State of Economy Recession Normal Boom Probability of State Economy .116 .669 .215 Multiple Choice Return if State Occurs Stock B -3.70% Stock A -10.30% 9.60% 21.59% 10.70% 25.19% Stock C -12.70% 17.10% 29.89%

Aa.5

Consider the following information: State of Probability of Economy State of Economy Boom Bust .58 .42 Rate of Return if State Occurs Variance Stock A .07 .16 Stock B 15 .06 a. What is the expected return on an equally weighted portfolio of these three stocks? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return 12.87% % Stock C 33 -.06 b. What is the variance of a portfolio invested 20 percent each in A and B and 60 percent in C? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., 32.161616.) 1.29% *

5 Consider the following information: Probability of State of State of Economy Boom Good Poor Bust Economy 15 .45 .35 .05 a. Rate of Return if State Occurs a. Expected return b-1. Variance b-2. Standard deviation Stock A Stock B Stock C .36 46 .26 .21 .17 10 -.03 -.17 Your portfolio is invested 22 percent each in A and C, and 56 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % -.06 -.21 % -.04 -.07

es Consider the following information on three stocks: State of Economy Boom Normal Bust Probability of State of Economy .20 .40 .40 Rate of Return If State Occurs Stock A .34 .25 .03 Stock B .46 .23 -.25 Stock C .50 .20 - .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 and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a-2. What is the variance? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .32161.) a-3. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 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 abd enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c-1. If the expected inflation rate…

Vijay

You decide to invest in a portfolio consisting of 20 percent Stock A, 52 percent Stock B, and the remainder in Stock C. Based on the following information, what is the variance of your portfolio? State of Economy Probability of State of Economy Return if State Occurs Stock A Stock B Stock C Recession .119-10.60% -4.00 % -13.00% Normal.675 9.90 % 10.76 % 17.40% Boom .206 21.65 % 25.31% 30.01% Multiple Choice .00861.00801.01162.00973.00904

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