Consider the following information on a portfolio of three stocks: State of Probability of State Stock A Rate of Economy of Economy Return Boom .15 .02 Normal .55 Bust .30 .10 .16 a. Expected return Variance Stock B Rate of Return .32 .12 -.11 % Stock C 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 and the standard deviation? .60 .20 -.35 Note: Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g., .16161. Enter your othe answers as a percent rounded to 2 decimal places, e.g., 32.16. b. If the expected T-bill rate is 3.75 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 State Stock A Rate of Economy of Economy Return Boom .15 .02 Normal .55 Bust .30 .10 .16 a. Expected return Variance Stock B Rate of Return .32 .12 -.11 % Stock C 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 and the standard deviation? .60 .20 -.35 Note: Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g., .16161. Enter your othe answers as a percent rounded to 2 decimal places, e.g., 32.16. b. If the expected T-bill rate is 3.75 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 Probability of State Stock A Rate of
Economy
of Economy
Return
.02
Boom
15
Normal
55
Bust
30
16
a. Expected return
Variance
Standard deviation
b. Expected risk premium
Stock B Rate of
Return
%
32
%
%
-.11
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,
and the standard deviation?
Stock C Rate of
Return
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 3.75 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.
.60
20
-.35
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