What is the portfolio expected return

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Reference no: EM133065238

Problem - Portfolio Returns and Deviations - Consider the following information about three stocks:

State of the economy

Probability of state

Rate of return Stock A

Rate of return Stock B

Rate of return Stock C

Boom

0.25

+0.20

+0.25

+0.60

Normal

0.55

+0.15

+0.11

+0.05

Bust

0.20

+0.01

-0.15

-0.50

Required -

Part A: If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio expected return? The variance? The standard deviation?

Part B: If the expected T-Bill rate is 3.50 percent, what is the expected risk premium on the portfolio?

Part C: If the expected inflation rate is 3.50 percent, what are the approximate and expected real returns on the portfolio? What are the approximate the exact expected real risk premiums on the portfolio?

Reference no: EM133065238

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