Consider the following information about three stocks: State of Economy Boom Normal Bust Probability of State of Economy 25 .50 25 Rate of Return if State Occurs Stock A 34 14 .05 Stock B 46 12 <-26 Stock C 58 10 -46 a-1. If your portfolio is invested 20 percent each in A and B and 60 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.)

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
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Consider the following information about three stocks:
State of Economy
Boom
Normal
Bust
Probability of State
of Economy
25
50
25
b.
Rate of Return if State Occurs
Stock A
34
14
.05
Stock B
46
12
<<-26
Stock C
58
.10
-46
a-1. If your portfolio is invested 20 percent each in A and B and 60 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.)
If the expected T-bill rate is 3.40 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 3.00 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.)
Transcribed Image Text:Consider the following information about three stocks: State of Economy Boom Normal Bust Probability of State of Economy 25 50 25 b. Rate of Return if State Occurs Stock A 34 14 .05 Stock B 46 12 <<-26 Stock C 58 .10 -46 a-1. If your portfolio is invested 20 percent each in A and B and 60 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.) If the expected T-bill rate is 3.40 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 3.00 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.)
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