Question

A portfolio consists of the following securities. What is the portfolio weight of stock C?

Stock	#Shares	PPS
A	200	$	48
B	150	$	33
C	350	$	21

Multiple Choice

0.336

0.557

0.445

0.451

0.389

The risk-free rate is 3.5 percent. What is the expected risk premium on this security given the following information?

State of the Economy	Probability	E(R)
Boom	0.30	15	%
Normal	0.55	8	%
Recession	0.20	-11	%

Multiple Choice

2.09 percent

4.15 percent

3.01 percent

3.20 percent

3.87 percent

The risk-free rate is 3.0 percent. What is the expected risk premium on this security given the following information?

State of the Economy	Probability	E(R)
Boom	0.30	16	%
Normal	0.55	8	%
Recession	0.20	-12	%

Multiple Choice

3.20 percent

3.01 percent

3.80 percent

2.90 percent

4.15 percent

There is a 35 percent probability that a particular stock will earn a 16 percent return and a 65 percent probability that it will earn 10 percent. What is the risk-free rate if the risk premium on the stock is 7.5 percent? MultipleChoice 5.20 percent 4.60 percent 4.20 percent 5.80 percent 5.40 percent

Answer 1

1-	share	no of shares	price per share	total value	Weight = value of stock in portfolio/total value of portfolio
	A	200	48	9600	0.438356
	B	150	33	4950	0.226027
	C	350	21	7350	0.335616
	total value portfolio			21900
	Portfolio weight of stock C				0.336
2-	return on security	(.30*15%)+(.55*8%)+(.20*-11%)	6.70%
	expected risk premium	(expected return-risk free rate)	6.7-3.5	3.2
3-	return on security	(.30*16%)+(.55*8%)+(.20*-12%)	6.80%
	expected risk premium	(expected return-risk free rate)	6.8-3	3.8
4-	return on security	(.35*16%)+(.65*10%)	12.10%
	expected risk premium	(expected return-risk premium)	12.1-7.5	4.6