Consider the following information on a portfolio of three stocks: State of Econ

Question

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 .12 .09 .34 .53 Normal .53 .17 .19 .27 Bust .35 .18 –.18 –.37 Required: (a) If your portfolio is invested 36 percent each in A and B and 28 percent in C, what is the portfolio’s expected return, the variance, and the standard deviation? (Do not round intermediate calculations. Round your variance answer to 5 decimal places (e.g., 32.16161) and input your other answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Expected return 9.65 % Variance 0.01101 Standard deviation 10.49 % (b) If the expected T-bill rate is 4.1 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Expected risk premium 5.55 %

What's in bold are my answers but I got it wrong.

Explanation / Answer

(b) If the expected T-bill rate is 4.1 percent, what is the expected risk premium on the portfolio?

Return Weight Weight *return Colume A (ColumeA-10.89%)^2*Probability probabilty A B C A B C A B C Total of weighted return Total of weighted return* probabilty Variance Boom 0.12 0.09 0.34 0.53 0.36 0.36 0.28 0.0324 0.1224 0.1484 30.32% 0.036384 0.45% Normal 0.53 0.17 0.19 0.27 0.36 0.36 0.28 0.0612 0.0684 0.0756 20.52% 0.108756 0.49% Bust 0.35 0.18 -0.18 -0.37 0.36 0.36 0.28 0.0648 -0.0648 -0.1036 -10.36% -0.03626 1.58% the expected return of the portfolio 10.89% 2.53%

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