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Read the information for 3 stocks X, Y and Z below.                                                                                  Rate of return when state occurs (For Stock X, Y, and Z) State of Economy Probability of State Stock X Stock Y Stock Z Boom 0.3 0.4 0.45 0.6 Normal 0.5 0.2 0.15 0.08 Recession 0.2 0 -0.3 -0.4 If your portfolio includes 35 percent of X, 40 percent of Y and 25 percent of Z, answer the following questions: (a) Calculate the portfolio expected return. (b) Calculate the variance and the standard deviation of the portfolio (c) If the expected T-bill rate is 3.80 percent, calculate the expected risk premium on the portfolio.

Read the information for 3 stocks X, Y and Z below.                                                                                  Rate of return when state occurs (For Stock X, Y, and Z) State of Economy Probability of State Stock X Stock Y Stock Z Boom 0.3 0.4 0.45 0.6 Normal 0.5 0.2 0.15 0.08 Recession 0.2 0 -0.3 -0.4 If your portfolio includes 35 percent of X, 40 percent of Y and 25 percent of Z, answer the following questions: (a) Calculate the portfolio expected return. (b) Calculate the variance and the standard deviation of the portfolio (c) If the expected T-bill rate is 3.80 percent, calculate the expected risk premium on the portfolio.

EBK CFIN
EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter8: Risk And Rates Of Return
Section: Chapter Questions
Problem 9PROB
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Read the information for 3 stocks X, Y and Z below.

                                                                                 Rate of return when state occurs (For Stock X, Y, and Z)

State of Economy Probability of State Stock X Stock Y Stock Z
Boom 0.3 0.4 0.45 0.6
Normal 0.5 0.2 0.15 0.08
Recession 0.2 0 -0.3 -0.4

If your portfolio includes 35 percent of X, 40 percent of Y and 25 percent of Z, answer
the following questions:

(a) Calculate the portfolio expected return.

(b) Calculate the variance and the standard deviation of the portfolio

(c) If the expected T-bill rate is 3.80 percent, calculate the expected risk premium
on the portfolio.

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