Consider the following information on a portfolio of three stocks: The portfolio is invested 35 percent in each Stock A and Stock B and 30 percent in Stock C.If the expected T-bill rate is 3.90 percent,what is the expected risk premium on the portfolio?
A)6.19 percent
B)6.90 percent
C)7.38 percent
D)7.72 percent
E)8.68 percent

Question

Consider the following information on a portfolio of three stocks:  The portfolio is invested 35 percent in each Stock A and Stock B and 30 percent in Stock C.If the expected T-bill rate is 3.90 percent,what is the expected risk premium on the portfolio?
A)6.19 percent 
B)6.90 percent 
C)7.38 percent 
D)7.72 percent 
E)8.68 percent

Quizplus · Accepted Answer

E(R_Boom) = (0.35 × 0.05) + (0.35 × 0.21) + (0.30 × 0.18) = 0.1450E(R_Normal) = (0.35 × 0.08) + (0.35 × 0.15) + (0.30 × 0.07) = 0.1015E(R_Bust) = (0.35 × 0.12) + (0.35 × -0.22) + (0.30 × -0.02) = -0.0410E(R_P) = (0.15 × 0.1450) + (0.80 × 0.1015) (0.05 × -0.0410) = 0.1009E(R_PP) = 0.1009 - 0.039 = 6.19 percent

Consider the Following Information on a Portfolio of Three Stocks