Consider the following information on three stocks: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock...

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Finance

Consider the following information on three stocks:
State of
Economy
Probability of
State of Economy
Rate of Return
if State Occurs
Stock A
Stock B
Stock C
Boom
.25
.27
.15
.11
Normal
.65
.14
.11
.09
Bust
.10
?.19
?.04
.05
A portfolio is invested 45 percent each in Stock A and Stock Band 10 percent in Stock C. What is the expected risk premium on theportfolio if the expected T-bill rate is 4.1 percent?
A.
8.71 percent
B.
7.81 percent
C.
12.74 percent
D.
11.47 percent

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Transcribed Image Text

Consider the following information on three stocks:State ofEconomyProbability ofState of EconomyRate of Returnif State OccursStock AStock BStock CBoom.25.27.15.11Normal.65.14.11.09Bust.10?.19?.04.05A portfolio is invested 45 percent each in Stock A and Stock Band 10 percent in Stock C. What is the expected risk premium on theportfolio if the expected T-bill rate is 4.1 percent?A.8.71 percentB.7.81 percentC.12.74 percentD.11.47 percent

State of Economy	Probability of State of Economy	Rate of Return if State Occurs
		Stock A		Stock B		Stock C
Boom	.25		.27		.15		.11
Normal	.65		.14		.11		.09
Bust	.10		?.19		?.04		.05