Consider the following information on a portfolio of three stocks: Probability of State Stock A Rate of Economy of Return State of Economy Boom Normal Bust .25 .60 .15 a. Expected return Variance Standard deviation b. Expected risk premium 0.10 % 0.00993 .04 .09 .15 0.10 % % Stock B Rate of Return a. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio's expected return? The variance? The standard deviation? Note: Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g., 16161. Enter your other answers as a percent rounded to 2 decimal places, e.g., 32.16. b. If the expected T-bill rate is 3.4 percent, what is the expected risk premium on the portfolio? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. .33 .13 -.14 Stock C Rate of Return .55 .19 -.28

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
icon
Related questions
Question
Consider the following information on a portfolio of three stocks:
Probability of State Stock A Rate
of Economy
of Return
State of Economy
Boom
Normal
Bust
.25
.60
15
a. Expected return
Variance
Standard deviation
b. Expected risk premium
0.10 %
.04
.09
15
0.00993
Stock B Rate
of Return
a. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio's
expected return? The variance? The standard deviation?
Note: Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g.,
16161. Enter your other answers as a percent rounded to 2 decimal places, e.g., 32.16.
0.10 %
%
.33
. 13
. 14
b. If the expected T-bill rate is 3.4 percent, what is the expected risk premium on the portfolio?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.
Stock C Rate
of Return
.55
. 19
-.28
Transcribed Image Text:Consider the following information on a portfolio of three stocks: Probability of State Stock A Rate of Economy of Return State of Economy Boom Normal Bust .25 .60 15 a. Expected return Variance Standard deviation b. Expected risk premium 0.10 % .04 .09 15 0.00993 Stock B Rate of Return a. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio's expected return? The variance? The standard deviation? Note: Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g., 16161. Enter your other answers as a percent rounded to 2 decimal places, e.g., 32.16. 0.10 % % .33 . 13 . 14 b. If the expected T-bill rate is 3.4 percent, what is the expected risk premium on the portfolio? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Stock C Rate of Return .55 . 19 -.28
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Investment in Stocks
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education