If your portfolio is invested 30 percent each in A and B and 40 percent in C, wh

Question

If your portfolio is invested 30 percent each in A and B and 40 percent in C, what is the portfolio expected return? (Round your answer to 2 decimal places. (e.g., 32.16))

What is the variance? (Do not round intermediate calculations and round your final answer to 5 decimal places. (e.g., 32.16161))

What is the standard deviation? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

If the expected T-bill rate is 4.20 percent, what is the expected risk premium on the portfolio? (Round your answer to 2 decimal places. (e.g., 32.16))

If the expected inflation rate is 3.80 percent, what are the approximate and exact expected real returns on the portfolio? (Round your answers to 2 decimal places. (e.g., 32.16))

What are the approximate and exact expected real risk premiums on the portfolio? (Round your answers to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Rate of Return if State Occurs   State of Probability of   Economy State of Economy Stock A Stock B Stock C VarA Var B Var C Cov AB Cov AC Cov BC   Boom 0.2 0.28 0.056 0.4 0.08 0.56 0.112 0.009801 0.0256 0.062001 0.004 0.004975 0.006368   Normal 0.45 0.22 0.099 0.2 0.09 0.18 0.081 0.003136 0.0225 0.0784 -0.00117 -0.00529 0.003258   Bust 0.35 0 0 ? 0.2 0.07 ? 0.48 0.168 0.024025 0.0289 0.037249 0.00217 -0.00646 -0.00167 0.155 0.24 0.361    Var 0.036962 0.077 0.17765 Portfolio Return = .3*0.155+.3*.24+.3*.361 SD 0.192255 0.277489 0.421485 0.2268 Cov 0.005 -0.00678 0.00796 Var of Port 0.027358 SD of Port 0.165404 Expected Risk premium 18.48 Appx expected real return 0.1888 Eaxact expected real return 0.181888247 Appx risk premium 18.48 exact risk premium 0.170610687

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