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You have decided to invest 30 percent in X; 30 percent in Y; and 40 percent in Z. The probability of the state of the economy is Boom 25%; Normal 60%; and, Bust 15%. The rate of return for stock X is Boom .20; Normal .15; and, Bust .00. The rate of return for stock Y is Boom .35; Normal .10; and, Bust -.30. The rate of return for stock Z is Boom .60; Normal .05; Bust -.40.

A] What is the portfolio expected return?

B] If the expected T-bill rate is 1.5 percent, what is the expected risk premium on the portfolio?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91380526

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