Consider the following information on a portfolio of three stocks: State of Probability of Economy State of Economy Stock A Rate of Return .04 Boom Normal Bust .12 .18 .15 .53 .32 Stock B Rate of Return .34 .24 -.23 Stock C Rate of Return .48 .22 -.37 a. If your portfolio is invested 36 percent each in A and B and 28 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 4.35 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 Probability of Economy State of Economy Stock A Rate of Return .04 Boom Normal Bust .12 .18 .15 .53 .32 Stock B Rate of Return .34 .24 -.23 Stock C Rate of Return .48 .22 -.37 a. If your portfolio is invested 36 percent each in A and B and 28 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 4.35 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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Question
Vijay
Transcribed Image Text:Consider the following information on a portfolio of three stocks:
State of Probability of
Economy State of Economy
Stock A Rate of
Return
Boom
.04
Normal
.12
Bust
.18
.15
.53
.32
a. If your portfolio is invested 36 percent each in A and B and 28 percent in C, what is the portfolio's
expected return, the variance, and the standard deviation?
a. Expected return
Variance
Standard deviation
b. Expected risk premium
Stock B Rate of Stock C Rate of
Return
Return
.34
.24
-.23
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 4.35 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.
%
.48
.22
-.37
%
%
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