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Consider the following information about three stocks: Returns State of Economy Prob A...

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Accounting

Consider the following information about three stocks:
Returns
State of Economy Prob A B
Boom 0.30.20.25
Normal 0.450.150.11
Bust 0.250.01-0.15
a. If your portfolio is invested 70 percent in A and 30 percent in B, what is the portfolio expected return? The variance? The standard deviation?
b. If the expected T-bill rate is 3.80 percent, what is the expected risk premium on the portfolio?
c. If the expected inflation rate is 3.50 percent, what are the approximate and exact expected real returns on the portfolio? What are the approximate and exact expected real risk premiums on the portfolio?

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