Question: Problem : Consider the following information about three stocks: State of Probability of State of Stock A Stock B Stock Economy Economy Returns Returns Returns

Problem : Consider the following information about three stocks: State of Probability of State of Stock A Stock B Stock Economy Economy Returns Returns Returns Boom 0.30 0.20 0.25 0.60 Normal 10.45 0.15 0.11 0.05 Bust 0.25 0.01 -0.15 -0.50 1. If your portfolio is invested 40 percent each in A and B and 20 percerit in C, what is the portfolio expected return? 2. What is the portfolio variance? 3. What is the portfolio standard deviation? 4. If the expected T-bill rate is 3.80 percent, what is the expected risk premium on the portfolio? Answer: 40

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