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

Question

Consider the following information on a portfolio of three stocks:

a. If your portfolio is invested 42 percent each in A and B and 16 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. Enter your other answers as a percent rounded to 2 decimal places, e.g., 32.16.)

b. If the expected T-bill rate is 3.9 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Expected risk premium             %

Please show all work.

State of Probability of Stock A Stock B Stock C Economy State of Economy Rate of Return Rate of Return Rate of Return Boom .12 .05 .35 .57 Normal .52 .13 .15 .23 Bust .36 .19 .14 .38

Explanation / Answer

a. Expected return = 9.71%

variance = 0.01161

std dev = 10.77%

b. risk premium = 9.71 - 3.9 = 5.81%

p(x) return p*x p*(x - mean)^2 0.12 25.92% 0.031104 0.003155 0.52 15.44% 0.080288 0.001709 0.36 -3.98% -0.01433 0.006743

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.