If your portfolio is invested 40 percent each in A and B and 20 percent in C, wh
ID: 2764584 • 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. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
What is the variance? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 32.16161.)
What is the standard deviation? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
If the expected T-bill rate is 4.90 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
If the expected inflation rate is 4.40 percent, what are the approximate and exact expected real returns on the portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded 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. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
a-1If 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. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Rate of Return If State Occurs State of EconomyState of Economy Boom Normal Bust hoay oi Stock A Stock B Stock C 30 40 30 27 .23 01 32 18 32 15 48Explanation / Answer
a1. Expected return of a portfolio in Normal State of Economy
E(rp) = waE(ra) + wbE(rb) + wcE(rc )
= 0.4*0.23 + 0.4*0.18 + 0.2*0.15 = 0.194
Stock A 0.4 0.23 0.092 Stock B 0.4 0.18 0.072 Stock C 0.2 0.15 0.03 Stock A Stock B Stock C Stock A Stock B Stock C 0.27 0.32 0.55 0.01 0.0676 0.227211 0.23 0.18 0.15 0.0036 0.0144 0.005878 0.01 -0.32 -0.48 0.0256 0.1444 0.306178 Mean Rate of return 0.17 0.06 0.073333 Stnd Dev 0.013067 0.075467 0.179756