Consider the following information on a portfolio of three stocks: If your portf

Question

Consider the following information on a portfolio of three stocks: If your portfolio is invested 38 percent each in A and B and 24 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).) If the expected T-bill rate is 4.55 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).)

Explanation / Answer

Answer to point No.(a)

Portfolio return 12.46% and Variance and Standard deviation is Zero.

Working

Answer to point No.(b)

R(f)=4.55%.

R(m)=Return on portfolio since standard deviation and variance is zero.

So R(m)=12.46%

Risk Premium=R(m)-R(f)

=12.46%-4.55%

=7.91%.

Expected risk premium on the portfoilo=7.91%.

Stock Weight Return stock Portfolio Return Portfolio variance Portfolio return A 0.38 15.11% 12.46% 1.01% 5.74% B 0.38 11.70% 12.46% -0.29% 4.45% C 0.24 9.48% 12.46% -0.72% 2.28% 0% 12.46%

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