Consider the following information on a portfolio of three stocks:
State of
Economy |
Probability of
State of Economy |
Stock A
Rate of Return |
Stock B
Rate of Return |
Stock C
Rate of Return |
| Boom |
.14 |
.05 |
.35 |
.47 |
| Normal |
.52 |
.13 |
.25 |
.23 |
| Bust |
.34 |
.19 |
-.24 |
-.38 |
|
| Required: |
| (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? (Do not round intermediate calculations. Round your variance answer to 5 decimal places (e.g., 32.16161) and input your other answers as a percentage rounded to 2 decimal places (e.g., 32.16).)
|
|
|
| Expected return |
% |
| Variance |
|
| Standard deviation |
% |
|
| (b) |
If the expected T-bill rate is 4.4 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
|