Consider the following information on a portfolio of three stocks: State of Economy Boom Normal Bust Probability of State Stock A Rate of Stock B Rate of Stock C Rate of Economy of Return Return Return .04 .33 .09 .13 .15 -.14 .25 .60 .15 .55 .19 -.28 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.
Consider the following information on a portfolio of three stocks: State of Economy Boom Normal Bust Probability of State Stock A Rate of Stock B Rate of Stock C Rate of Economy of Return Return Return .04 .33 .09 .13 .15 -.14 .25 .60 .15 .55 .19 -.28 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.
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 on a portfolio of three stocks:
State of Economy
Boom
Normal
Bust
Probability of State Stock A Rate of Stock B Rate of Stock C Rate
of Economy
of Return
Return
Return
.04
.33
.09
.13
.15
-.14
.25
.60
.15
a. Expected return
Variance
Standard deviation
b. Expected risk premium
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.
.55
.19
-.28
%
%
%
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