Question

Consider the following information on a portfolio of three stocks:

State of	Probability of			Stock A			Stock B			Stock C
Economy	State of Economy			Rate of Return			Rate of Return			Rate of Return
Boom		.13			.08			.33			.54
Normal		.54			.16			.18			.26
Bust		.33			.17		−	.17		−	.36

a. If your portfolio is invested 38 percent each in A and B and 24 percent in C, what is the portfolio’s expected return, the variance, and the standard deviation? (Do not round intermediate calculations. Round your variance answer to 5 decimal places, e.g., 32.16161. Enter your other answers as a percent rounded to 2 decimal places, e.g., 32.16.)

b. If the expected T-bill rate is 4.05 percent, what is the expected risk premium on the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

This is the second time I have asked this question before the expected return to be 11.21% and expected risk preium 7.16% which were correct. But the last person got the varience and standard deviation wrong.

Answer 1