Consider the following information on three stocks: state of economy probability of state of economy rate of return if state occurs stock a stock b stock c boom .25 .27 .15 .11 normal .65 .14 .11 .09 bust .10 −.19 −.04 .05 a portfolio is invested 45 percent each in stock a and stock b and 10 percent in stock c. what is the expected risk premium on the portfolio if the expected t-bill rate is 4.1 percent?

market premium = 0,0781 = 7.81%

Explanation:

We have to calculate the market return and then calcualte the premium as the difference between the expected return on the market and the risk-free rate:

We multiply each outcome by the stock weight. and then for the probability of occurence of that state of economy

Calculations for boom:

Change of boom x (weighted outcome A + weighted outcome B + weighted outcome C)

0.25    x    (0.45 x 0.15 + 0.45 0.27 + 0.1 x 0.05) = 0.05

market expected return 0,1191

Market premium: 0,1191 - 0,041 = 0,0781

answer; (15,000)workers each

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know