If your portfolio is invested 40 percent each in A and B and 20 percent in C , w
ID: 2651726 • Letter: I
Question
If your portfolio is invested 40 percent each in A and B and 20 percent in C , what is the portfolio expected return? (Do not round intermediate calculations and 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 3.80 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
If the expected inflation rate is 3.50 percent, what are the approximate and exact expected real returns on the portfolio? (Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16))
What are the approximate and exact expected real risk premiums on the portfolio? (Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16))
Consider the following information about three stocks:
Explanation / Answer
Answer:
Calculation of Expected Return of portfolio
State of Economy
Probability of
Stock A
Stock B
Stock C
Return
Expected Return (A)
Return
Expected Return (B)
Return
Expected Return (C)
A
B
A*B
C
A*C
D
A*D
Boom
0.30
20%
6%
25%
8%
60%
18%
Normal
0.45
15%
7%
11%
5%
5%
2%
Bust
0.25
1%
0%
-15%
-4%
-50%
-13%
Expected returns (E)
13%
9%
8%
Weights (F)
40%
40%
20%
E*F
5.20%
3.48%
1.55%
Expected return of portfolio = Sum of E *F
10.23%
Calculation of Expected Return of portfolio
State of Economy
Probability of
Stock A
Stock B
Stock C
Return
Expected Return (A)
Return
Expected Return (B)
Return
Expected Return (C)
A
B
A*B
C
A*C
D
A*D
Boom
0.30
20%
6%
25%
8%
60%
18%
Normal
0.45
15%
7%
11%
5%
5%
2%
Bust
0.25
1%
0%
-15%
-4%
-50%
-13%
Expected returns (E)
13%
9%
8%
Weights (F)
40%
40%
20%
E*F
5.20%
3.48%
1.55%
Expected return of portfolio = Sum of E *F
10.23%