If your portfolio is invested 40 percent each in A and B and 20 percent in C, wh
ID: 2720332 • Letter: I
Question
If your portfolio is invested 40 percent each in A and B and 20 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 3.75 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).)
Consider the following information on a portfolio of three stocks:Explanation / Answer
..
Expected return from portfolio = 0.4*10.6 + 0.4*8.1 + 0.2*9.5
= 9.38%
Stock-A State of Economy Probability(P) Return(X) PX P*(X-X bar)^2 Boom 0.15 0.02 0.003 0.0011094 Normal 0.55 0.1 0.055 0.0000198 Bust 0.3 0.16 0.048 0.0008748 0.002004 Variance 0.20% X bar 0.106 SD 0.45% Expected return 10.60% Stock-B State of Economy Probability(P) Return(X) PX P*(X-X bar)^2 Boom 0.15 0.32 0.048 0.00856815 Normal 0.55 0.12 0.066 0.00083655 Bust 0.3 -0.11 -0.033 0.0109443 0.020349 Variance 2.03% X bar 0.081 SD 1.43% Expected return 8.10% Stock-C State of Economy Probability(P) Return(X) PX P*(X-X bar)^2 Boom 0.15 0.6 0.09 0.03825375 Normal 0.55 0.2 0.11 0.00606375 Bust 0.3 -0.35 -0.105 0.0594075 0.103725 Variance 10.37% X bar 0.095 SD 3.22% Expected return 9.50%