Consider the following information on a portfolio of three stocks: State of Economy Probability of State of Economy Stock A Rate of Return Stock B Rate of Return Stock C Rate of Return Boom .13 .02 .32 .50 Normal .55 .10 .22 .20 Bust .32 .16 −.21 −.35 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? 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. If the expected T-bill rate is 4.25 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 Economy Probability of State of Economy Stock A Rate of Return Stock B Rate of Return Stock C Rate of Return Boom .13 .02 .32 .50 Normal .55 .10 .22 .20 Bust .32 .16 −.21 −.35 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? 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. If the expected T-bill rate is 4.25 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.
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 16P
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Problem 11-25 Portfolio Returns and Deviations [LO 1, 2]
Consider the following information on a portfolio of three stocks:
State of Economy | Probability of State of Economy | Stock A |
Stock B Rate of Return | Stock C Rate of Return |
---|---|---|---|---|
Boom | .13 | .02 | .32 | .50 |
Normal | .55 | .10 | .22 | .20 |
Bust | .32 | .16 | −.21 | −.35 |
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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?
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.
-
If the expected T-bill rate is 4.25 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.
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