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Consider the following information on a portfolio of three stocks: State of Probability of Stock A Rate of Economy State of Economy Return Boom Normal .12 .07 Stock B Rate of Return .32 Stock C Rate of Return .45 Bust .55 .33 .15 .16 .27 -.26 .25 -.35 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? 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 4.5 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. a. Expected return Variance % Standard deviation % b. Expected risk premium %

Consider the following information on a portfolio of three stocks: State of Probability of Stock A Rate of Economy State of Economy Return Boom Normal .12 .07 Stock B Rate of Return .32 Stock C Rate of Return .45 Bust .55 .33 .15 .16 .27 -.26 .25 -.35 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? 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 4.5 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. a. Expected return Variance % Standard deviation % b. Expected risk premium %

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 12P
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Raghubhai 

Consider the following information on a portfolio of three stocks: State of Probability of Stock A Rate of Economy State of Economy Return Boom Normal .12 .07 Stock B Rate of Return .32 Stock C Rate of Return .45 Bust .55 .33 .15 .16 .27 -.26 .25 -.35 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? 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 4.5 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. a. Expected return Variance % Standard deviation % b. Expected risk premium %
Transcribed Image Text:Consider the following information on a portfolio of three stocks: State of Probability of Stock A Rate of Economy State of Economy Return Boom Normal .12 .07 Stock B Rate of Return .32 Stock C Rate of Return .45 Bust .55 .33 .15 .16 .27 -.26 .25 -.35 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? 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 4.5 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. a. Expected return Variance % Standard deviation % b. Expected risk premium %
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