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Portfolio expected return, standard deviation, risk premium

Consider the following information about three stocks:
State of Economy
Probability of State of Economy Rate of Return if State Occurs
Stock A Stock B Stock C
Boom .4 .20 .35 .60 .4 .20 .35 .60
Normal .4 .15 .12 .05 .4 .15 .12 .05
Bust .2 .01 -.25 -.50 .2 .01 -.25 -.50

a. If your portfolio is invested 40% each in A and B and 20% in C, what is the portfolio expected return? The variance? The standard deviation?

b. If the expected T-bill rate is 3.8%, what is the expected risk premium on the portfolio?

I need to see intermediate steps and formulas. Please do not respond in Excel. Thank you.


Solution Summary

The solution calculates the expected return, variance, standard deviation and the risk premium of a portfolio.