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Portfolio returns and deviations

Task: Portfolio Returns and Deviations

Consider the following information about three stocks:

State of Economy	Probability of State of Economy	Rate of Return if State Occurs
State of Economy	Probability of State of Economy	Stock A	Stock B	Stock C
Boom .4 .20 .35 .60	.4	.20	.35	.60
Normal .4 .15 .12 .05	.4	.15	.12	.05
Bust .2 .01 -.25 -.50	.2	.01	-.25	-.50

Question 1: If your portfolio is invested 40% each in A and B and 20% in C, what is the portfolio expected return? The variance? The standard deviation?

Question 2: If the expected T-bill rate is 3.8%, what is the expected risk premium on the portfolio?

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