Consider the following information about three stocks: Rate of Return If State Occurs Probability of State of Economy State of Economy Stock A Stock B Stock C Вoom .25 .13 .29 .60 Normal .60 .08 .11 .13 Bust .15 .02 -18 -.45 your portfolio is invested 40 percent each in A and B and 20 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- What is the variance? (Do not round intermediate calculations and round 2. your answer to 5 decimal places, e.g., .16161.) a- What is the standard deviation? (Do not round intermediate calculations and enter 3. your answer as a percent rounded to 2 decimal places, e.g., 32.16.) а-1.If
Consider the following information about three stocks: Rate of Return If State Occurs Probability of State of Economy State of Economy Stock A Stock B Stock C Вoom .25 .13 .29 .60 Normal .60 .08 .11 .13 Bust .15 .02 -18 -.45 your portfolio is invested 40 percent each in A and B and 20 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- What is the variance? (Do not round intermediate calculations and round 2. your answer to 5 decimal places, e.g., .16161.) a- What is the standard deviation? (Do not round intermediate calculations and enter 3. your answer as a percent rounded to 2 decimal places, e.g., 32.16.) а-1.If
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Consider the following information about three stocks:
Rate of Return If State Occurs
Probability of State
of Economy
.25
State of Economy
Stock A
Stock B
Stock C
Вoom
.13
.29
.60
Normal
.60
.08
.11
.13
Bust
.15
.02
-18
-.45
your portfolio is invested 40 percent each in A and B and 20 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- What is the variance? (Do not round intermediate calculations and round
2. your answer to 5 decimal places, e.g., .16161.)
a- What is the standard deviation? (Do not round intermediate calculations and enter
3. your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b. If the expected T-bill rate is 3.70 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 3.30 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- What are the approximate and exact expected real risk premiums on the portfolio?
2. (Do not round intermediate calculations and enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)
а-1.If
Answer is not complete.
a-1. Portfolio expected return
11.01
%
a-2. Variance
0.01841
a-3. Standard deviation
13.57
%
b. Expected risk premium
7.31
%
c-1. Approximate expected real return
7.71
c-1. Exact expected real return
7.46
c-2. Approximate expected real risk premium
%
c-2. Exact expected real risk premium
%
Transcribed Image Text:Asset W has an expected return of 8.8 percent and a beta of .9O. If the risk-free rate is
2.6 percent, complete the following table for portfolios of Asset W and a risk-free asset.
(Do not round intermediate calculations. Enter your expected returns as a percent
rounded to 2 decimal places, e.g., 32.16, and your beta answers to 3 decimal places,
e.g., 32.161.)
Answer is complete and correct.
Percentage of Portfolio in Asset
W
Portfolio Expected
Portfolio
Return
Beta
%
2.60
%
25
4.15
%
0.225
50
5.70
%
0.450
75
7.25
%
0.680
100
8.80
%
0.900
125
10.35
%
1.130
150
11.90
%
1.350
you plot the relationship between portfolio expected return and portfolio beta, what is
the slope of the line that results? (Do not round intermediate calculations and enter
your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
If
X Answer is not complete.
Slope of the line
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