Problem 13-23 Portfolio Returns and Deviations [LO2] Consider the following information about three stocks: Rate of Return if State Occurs Probability of State State of Economy Boom Normal of Economy Stock A .20 .24 Stock B .36 Stock C .58 .50 .20 .18 .16 Bust .30 .04 -.36 -.45 a-1. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio expected return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a-2. What is the variance? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) a-3. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If the expected T-bill rate is 4.00 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c-1. If the expected inflation rate is 3.60 percent, what are the approximate and exact expected real returns on the portfolio? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-2. What are the approximate and exact expected real risk premiums on the portfolio? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Problem 13-23 Portfolio Returns and Deviations [LO2] Consider the following information about three stocks: Rate of Return if State Occurs Probability of State State of Economy Boom Normal of Economy Stock A .20 .24 Stock B .36 Stock C .58 .50 .20 .18 .16 Bust .30 .04 -.36 -.45 a-1. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio expected return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a-2. What is the variance? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) a-3. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If the expected T-bill rate is 4.00 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c-1. If the expected inflation rate is 3.60 percent, what are the approximate and exact expected real returns on the portfolio? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-2. What are the approximate and exact expected real risk premiums on the portfolio? (Do not round intermediate calculations and enter your answers 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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![Problem 13-23 Portfolio Returns and Deviations [LO2]
Consider the following information about three stocks:
Rate of Return if State Occurs
Probability of State
State of Economy
Boom
Normal
of Economy
Stock A
.20
.24
Stock B
.36
Stock C
.58
.50
.20
.18
.16
Bust
.30
.04
-.36
-.45
a-1. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is
the portfolio expected return? (Do not round intermediate calculations and enter
your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a-2. What is the variance? (Do not round intermediate calculations and round your
answer to 5 decimal places, e.g., .16161.)
a-3. What is the standard deviation? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b.
If the expected T-bill rate is 4.00 percent, what is the expected risk premium on the
portfolio? (Do not round intermediate calculations and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.)
c-1. If the expected inflation rate is 3.60 percent, what are the approximate and exact
expected real returns on the portfolio? (Do not round intermediate calculations
and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
c-2. What are the approximate and exact expected real risk premiums on the portfolio?
(Do not round intermediate calculations and enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6dd554c2-0ab3-496e-b309-00f8a3e95823%2F962062fe-4901-4364-a1d0-640d92e0f2b7%2Fcy7txd8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 13-23 Portfolio Returns and Deviations [LO2]
Consider the following information about three stocks:
Rate of Return if State Occurs
Probability of State
State of Economy
Boom
Normal
of Economy
Stock A
.20
.24
Stock B
.36
Stock C
.58
.50
.20
.18
.16
Bust
.30
.04
-.36
-.45
a-1. If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is
the portfolio expected return? (Do not round intermediate calculations and enter
your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a-2. What is the variance? (Do not round intermediate calculations and round your
answer to 5 decimal places, e.g., .16161.)
a-3. What is the standard deviation? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b.
If the expected T-bill rate is 4.00 percent, what is the expected risk premium on the
portfolio? (Do not round intermediate calculations and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.)
c-1. If the expected inflation rate is 3.60 percent, what are the approximate and exact
expected real returns on the portfolio? (Do not round intermediate calculations
and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
c-2. What are the approximate and exact expected real risk premiums on the portfolio?
(Do not round intermediate calculations and enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)
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