Question 6: Portfolio return (25 points) Consider the following information about three stocks: State of economy Probability of State of Economy 0.30 0.40 0.30 Stock A 0.20 0.15 0.01 Rate of return if stat occurs Stock B 0.25 0.11 0.15 Stock C 0.60 0.05 0.50 Expansion Normal Recession a. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio expected retun? The variance? The standard deviation? b. If the expected T-bill rate is 3.50 percent, what is the expected risk premium on the portfolio? e. If the expected inflation rate is 3.50 percent, what are the approximate and exact expected real retuns on the portfolio? What are the approximate and exact expected real risk premiums on the portfolio? d. You have $100,000 to invest in a portfolio containing Stock A, Stock B, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 8.5 percent and that has only 95 percent of the risk of the overall market. If A has a beta of 1.5, B has a beta of 0.7, and the risk-free rate is 3.5 percent, how much money will you invest in Stock A? How do you interpret your