Consider the following information on a portfolio of three stocks: State of Probability of Economy State of Economy Stock A Rate of Return .13 .06 Boom Normal Bust .51 .14 .36 .20 a. Expected return Variance Standard deviation b. Expected risk premium 1% Stock B Rate of Return % .36 .26 -.25 a. If your portfolio is invested 44 percent each in A and B and 12 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 4.45 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 .46 .24 -.39
Consider the following information on a portfolio of three stocks: State of Probability of Economy State of Economy Stock A Rate of Return .13 .06 Boom Normal Bust .51 .14 .36 .20 a. Expected return Variance Standard deviation b. Expected risk premium 1% Stock B Rate of Return % .36 .26 -.25 a. If your portfolio is invested 44 percent each in A and B and 12 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 4.45 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 .46 .24 -.39
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:
Stock A Rate of
Return
.06
14
.20
State of Probability of
Economy State of Economy
Boom
Normal
Bust
.13
.51
.36
a. Expected retum
Variance
Standard deviation
b. Expected risk premium
%
Stock B Rate of
Return
a. If your portfolio is invested 44 percent each in A and B and 12 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 4.45 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.
%
.36
.26
-.25
Stock C Rate of
Return.
.46
.24
-.39
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