What is the standard deviation of the returns on a portfolio that is invested in stocks A, B, and C? 40 percent of the portfolio is invested in stock A and 35 percent is invested in stock C. State of Economy Probability of State of Economy Returns if State Occurs Stock A Stock B Stock C Boom 15% 13% 5% 17% Normal 65% 6% 8% 11% Bust 20% -2% 14% -19%
18. What is the standard deviation of the returns on a portfolio that is invested in stocks A, B, and
C? 40 percent of the portfolio is invested in stock A and 35 percent is invested in stock C.
State of Economy Probability of
State of Economy
Returns if State Occurs
Stock A Stock B Stock C
Boom 15% 13% 5% 17%
Normal 65% 6% 8% 11%
Bust 20% -2% 14% -19%
19. Your portfolio has a beta of 0.80. The portfolio consists of 30 percent Treasury bills, 50
percent stock A, and 20 percent stock B. Stock A has a risk-level equivalent to that of the
overall market. What is the beta of stock B?
20. CEPS Group stock has a beta of 1.15. The risk-free
market risk premium is 7.5 percent. What is the expected rate of return on this stock?
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