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Consider the following information about three stocks: State of Economy Boom Normal Bust a-2. a-3. Probability of State of Economy .22 .46 .32 b. Rate of Return if State Occurs Stock A Stock C .30 .58 .23 .19 .01 -.50 a-1. If your portfolio is invested 25 percent each in A and B and 50 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.) What is the variance? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) 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.) If the expected T-bill rate is 4.30 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 3.90 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.) Stock B .42 .21 -.22

Consider the following information about three stocks: State of Economy Boom Normal Bust a-2. a-3. Probability of State of Economy .22 .46 .32 b. Rate of Return if State Occurs Stock A Stock C .30 .58 .23 .19 .01 -.50 a-1. If your portfolio is invested 25 percent each in A and B and 50 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.) What is the variance? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) 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.) If the expected T-bill rate is 4.30 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 3.90 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.) Stock B .42 .21 -.22

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 5P
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Consider the following information about three stocks: State of Economy Boom Normal Bust b. Probability of State of Economy .22 .46 .32 Rate of Return if State Occurs Stock C .58 .19 -.50 Stock A .30 .23 .01 Stock B .42 .21 -.22 a-1. If your portfolio is invested 25 percent each in A and B and 50 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.) If the expected T-bill rate is 4.30 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 3.90 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.)
Transcribed Image Text:Consider the following information about three stocks: State of Economy Boom Normal Bust b. Probability of State of Economy .22 .46 .32 Rate of Return if State Occurs Stock C .58 .19 -.50 Stock A .30 .23 .01 Stock B .42 .21 -.22 a-1. If your portfolio is invested 25 percent each in A and B and 50 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.) If the expected T-bill rate is 4.30 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 3.90 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.)
a-1. Portfolio expected return a-2. Variance a-3. Standard deviation b. Expected risk premium c-1. Approximate expected real return c-1. Exact expected real return c-2. Approximate expected real risk premium c-2. Exact expected real risk premium % % % % % % %
Transcribed Image Text:a-1. Portfolio expected return a-2. Variance a-3. Standard deviation b. Expected risk premium c-1. Approximate expected real return c-1. Exact expected real return c-2. Approximate expected real risk premium c-2. Exact expected real risk premium % % % % % % %
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