Problem 11-25 Portfolio Returns and Deviations [LO 1, 2] Consider the following information on a portfolio...

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Finance

Problem 11-25 Portfolio Returns and Deviations [LO 1, 2]
Consider the following information on a portfolio of threestocks:
State of Probability of Stock A Stock B Stock C
Economy State of Economy Rate of Return Rate of Return Rate of Return
Boom .15 .02 .32 .60
Normal .55 .10 .12 .20
Bust .30 .16 ? .11 ? .35
a. If your portfolio is invested 40 percenteach in A and B and 20 percent in C, what is the portfolio’sexpected return, the variance, and the standard deviation?(Do not round intermediate calculations. Round yourvariance answer to 5 decimal places, e.g., 32.16161. Enter yourother answers as a percent rounded to 2 decimal places, e.g.,32.16.)
  Expected return %
  Variance
  Standard deviation %
b. If the expected T-bill rate is 3.75 percent,what is the expected risk premium on the portfolio? (Do notround intermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)

Expected risk premium            %

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a Stock A Scenario Probability Return rate of return probability Actual return expected returnA A2 probability Boom 015 2 03 86 00011094 Normal 055 10 55 06 00000198 Bust 03 16 48 54 00008748 Expected return sum of weighted return 106 SumVariance Stock A 0002 Standard deviation of Stock A Variance12 448 Stock B Scenario Probability Return rate of return probability Actual return expected returnA B2 probability Boom 015 32 48 239 000856815 Normal See Answer

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Problem 11-25 Portfolio Returns and Deviations [LO 1, 2]Consider the following information on a portfolio of threestocks:State ofProbability ofStock AStock BStock CEconomyState of EconomyRate of ReturnRate of ReturnRate of ReturnBoom.15.02.32.60Normal.55.10.12.20Bust.30.16?.11?.35a. If your portfolio is invested 40 percenteach in A and B and 20 percent in C, what is the portfolio’sexpected return, the variance, and the standard deviation?(Do not round intermediate calculations. Round yourvariance answer to 5 decimal places, e.g., 32.16161. Enter yourother answers as a percent rounded to 2 decimal places, e.g.,32.16.) Expected return% Variance Standard deviation%b. If the expected T-bill rate is 3.75 percent,what is the expected risk premium on the portfolio? (Do notround intermediate calculations and enter your answer as a percentrounded to 2 decimal places, e.g., 32.16.)Expected risk premium %

State of	Probability of		Stock A		Stock B		Stock C
Economy	State of Economy		Rate of Return		Rate of Return		Rate of Return
Boom		.15		.02		.32		.60
Normal		.55		.10		.12		.20
Bust		.30		.16	?	.11	?	.35