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 Boom Normal Bust 0.25 0.40 0.35 0.32 0.44 0.24 0.22 0.02 -0.24 Stock C 0.60 0.20 -0.40 a-1. If your portfolio is invested 30% each in A and B and 40% 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 % a-2. What is the variance? (Do not round intermediate calculations. Round the final answer to 8 decimal places.) Variance 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 % b. If the expected T-bill rate is 4.60%, 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 % c-1. If the expected inflation rate is 2.60%, 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 % % 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 % %

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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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
Boom
Normal
Bust
0.25
0.40
0.35
0.32
0.44
0.24
0.22
0.02
-0.24
Stock C
0.60
0.20
-0.40
a-1. If your portfolio is invested 30% each in A and B and 40% 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
%
a-2. What is the variance? (Do not round intermediate calculations. Round the final answer to 8 decimal places.)
Variance
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
%
Transcribed Image Text: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 Boom Normal Bust 0.25 0.40 0.35 0.32 0.44 0.24 0.22 0.02 -0.24 Stock C 0.60 0.20 -0.40 a-1. If your portfolio is invested 30% each in A and B and 40% 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 % a-2. What is the variance? (Do not round intermediate calculations. Round the final answer to 8 decimal places.) Variance 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 %
b. If the expected T-bill rate is 4.60%, 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
%
c-1. If the expected inflation rate is 2.60%, 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
%
%
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
%
%
Transcribed Image Text:b. If the expected T-bill rate is 4.60%, 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 % c-1. If the expected inflation rate is 2.60%, 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 % % 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 % %
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