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  3. consider the following situation: state of eco

Consider the following situation: State of Economy Probability of State of Economy Returns if State Occurs Stock A Stock B Stock...

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Finance

Consider the following situation:

State of Economy

Probability of State of Economy

Returns if State Occurs

Stock A

Stock B

Stock C

Boom

20%

25%

10%

5%

Recession

80%

-30%

5%

10%

The expected return on the marketportfolio is 7% and the US Treasury bill yields 3%. The capitalmarket is currently in equilibrium.

  1. (5 points) Which stock has the most systematic risk? Provideall the steps and equations.

  1. (5 points) Which stock has the most unsystematic risk? Explainwhy. Provide all the steps and equations.
  1. (10 points) What is the standard deviation of a portfolio whichis comprised of $8,400 invested in stock A, $3,600 in stock B, and$8,000 in stock C?
  1. (5 points) If the expected inflation rate is 2.5%, what is theexact expected real return on the portfolio of part (c)?

Answer & Explanation Solved by verified expert
4.4 Ratings (727 Votes)
a Systematic Risk Beta Returns if State Occurs Expected Return State of Economy Probability of State of Economy Stock A Stock B Stock C    See Answer
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