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Consider the following information on three stocks:

State of Economy Probability of State of Economy Rate of Return Stock A Rate of Return Stock B Rate of Return Stock C

Boom .25 .35 .40 .52

Normal .50 .17 .15 .13

Bust .25 .01 -.32 -.40

If your portfolio is invested 35% each in A and B and 30% in C, what is the portfolio Expected Return?

What is the variance?

What is the standard deviation?

If the expected T-bill rate is 3.70%, what is the expected risk premium on the portfolio?

If the expected inflation rate is 3.30%, what are the approximate and exact expected real returns for the portfolio?

What are the approximate and exact expected real risk premiums on the portfolio?

 
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