Consider the following information on a portfolio of three stocks: State of Probability of Economy State of Economy Book Normal Stock A Rate of Stock 8 Rate of Return Return -32 -12 a. If your portfolio is invested 38 percent each in A and B and 24 percent in C, what is the portfolio's expected return, the variance, and 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 3.8 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. Answer is complete but not entirely correct. a. Expected return Variance Standard deviation b. Expected risk premium Stock C Rate of Return 18.16 0.01638 0.13 0.15% Return to question
Consider the following information on a portfolio of three stocks: State of Probability of Economy State of Economy Book Normal Stock A Rate of Stock 8 Rate of Return Return -32 -12 a. If your portfolio is invested 38 percent each in A and B and 24 percent in C, what is the portfolio's expected return, the variance, and 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 3.8 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. Answer is complete but not entirely correct. a. Expected return Variance Standard deviation b. Expected risk premium Stock C Rate of Return 18.16 0.01638 0.13 0.15% Return to question
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 on a portfolio of three stocks:
State of Probability of
Economy State of Economy
Boom
Stock A Rate of
Return
Normal
.32
a. Expected return
Variance
-17
-.12
a. If your portfolio is invested 38 percent each in A and B and 24 percent in C, what is the portfolio's expected return, the variance,
and the standard deviation?
Answer is complete but not entirely correct.
18.16%
Stock B Rate of
Return
.33
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 3.8 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.
Standard deviation
b. Expected risk premium
0.01638 x
Stock C Rate of
Return
0.13%
0.15 %
.59
.21
-.36
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Step 1: Introduction
VIEWStep 2: Computation of each stock's expected return and standard deviation
VIEWStep 3: Computation of Covariance between stocks
VIEWStep 4: Computation of correlation coefficient
VIEWStep 5: Computation of expected return, variance and standard deviation of portfolio
VIEWStep 6: Computation of expected risk premium on portfolio
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