Problem 13-23 Portfolio Returns and Deviations [LO2]

Consider the following information about three stocks:

				Rate of Return If State Occurs
State of	Probability of
Economy	State of Economy			Stock A			Stock B			Stock C
Boom		.20			.38			.50			.54
Normal		.50			.21			.16			.13
Bust		.30			.05			.28			.45

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., .16161.)
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 4.70 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c-1.	If the expected inflation rate is 4.20 percent, what are the approximate and exact expected real returns on the portfolio? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
c-2.	What are the approximate and exact expected real risk premiums on the portfolio?(Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

a-1.Portfolio expected return%

a-2.Variance

a-3.Standard deviation%b.Expected risk premium%

c-1.Approximate expected real return%Exact expected real return%

c-2.Approximate expected real risk premium%

Exact expected real risk premium%