Consider the following information about three stocks: State of Economy Probability of State of Economy Rate...

 

Transcribed Image Text:

Consider the following information about three stocks: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock Bi Stock C Boom Normal 0.20 0.34 0.46 0.50 Bust 0.40 0.40 0.25 0.23 0.03 -0.25 0.20 -0.42 a-1. If your portfolio is invested 35% each in A and B and 30% in C, what is the portfolio expected return? (Do not round intermediate calculations. Enter the answer as a percent rounded to 2 decimal places.) Portfolio expected return 9.60 % a-2. What is the variance? (Do not round intermediate calculations. Round the final answer to 8 decimal places.) Variance 0.065041200 a-3. What is the standard deviation? (Do not round intermediate calculations. Enter the answer as a percent rounded to 2 decimal places.) Standard deviation 25.50 % b. If the expected T-bill rate is 4.70%, what is the expected risk premium on the portfolio? (Do not round intermediate calculations. Enter the answer as a percent rounded to 2 decimal places.) Expected risk premium 4.90 % c-1. If the expected inflation rate is 2.70%, what are the approximate and exact expected real returns on the portfolio? (Do not round intermediate calculations. Enter the answers as a percent rounded to 2 decimal places.) Approximate expected real return. Exact expected real return 6.90 % 6.72 c-2. What are the approximate and exact expected real risk premiums on the portfolio? (Do not round intermediate calculations. Enter the answers as a percent rounded to 2 decimal places.) Approximate expected real risk premium Exact expected real risk premium % Consider the following information about three stocks: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock Bi Stock C Boom Normal 0.20 0.34 0.46 0.50 Bust 0.40 0.40 0.25 0.23 0.03 -0.25 0.20 -0.42 a-1. If your portfolio is invested 35% each in A and B and 30% in C, what is the portfolio expected return? (Do not round intermediate calculations. Enter the answer as a percent rounded to 2 decimal places.) Portfolio expected return 9.60 % a-2. What is the variance? (Do not round intermediate calculations. Round the final answer to 8 decimal places.) Variance 0.065041200 a-3. What is the standard deviation? (Do not round intermediate calculations. Enter the answer as a percent rounded to 2 decimal places.) Standard deviation 25.50 % b. If the expected T-bill rate is 4.70%, what is the expected risk premium on the portfolio? (Do not round intermediate calculations. Enter the answer as a percent rounded to 2 decimal places.) Expected risk premium 4.90 % c-1. If the expected inflation rate is 2.70%, what are the approximate and exact expected real returns on the portfolio? (Do not round intermediate calculations. Enter the answers as a percent rounded to 2 decimal places.) Approximate expected real return. Exact expected real return 6.90 % 6.72 c-2. What are the approximate and exact expected real risk premiums on the portfolio? (Do not round intermediate calculations. Enter the answers as a percent rounded to 2 decimal places.) Approximate expected real risk premium Exact expected real risk premium %