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Question

# \$1.00PORTFOLIO RETURN - 2 QUESTIONS

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• Due on May. 31, 2012
• Asked on May. 30, 2012 at 02:13:34AM

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Q:
 1. Consider the following information:

 Rate of Return if State Occurs State of Probability of State Economy of Economy Stock A Stock B Stock C Boom 0.74 0.12 0.06 0.32 Bust 0.26 0.21 0.27 –0.12

 Required:
 What is the variance of a portfolio invested 29 percent each in A and B and 42 percent in C? (Round your answer to 5 decimal places (e.g., 32.16161).)

 2. Suppose you observe the following situation:

 State of Economy Probability of State Return if State Occurs Stock A Stock B Bust 0.17 −0.05 −0.06 Normal 0.72 0.18 0.17 Boom 0.11 0.46 0.31

 Required:
 Assuming the capital asset pricing model holds and stock A’s beta is greater than stock B’s beta by .31, what is the expected market risk premium? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

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Portfolio Variance
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• Posted on May. 30, 2012 at 08:37:43AM
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