4)Johnson & Johnson and Walgreen Company have a correlation of 16% and expectedreturns and standard deviations as shown below.E(r)Johnson & Johnson8%17%Walgreen Company11%21%a) Calculate the expected return and volatility of a portfolio- that is equally invested in the two stocksthat consists of a long position of $12,000 in Johnson & Johnson and a shortpositionof $4,000 in Walgreen.b) Calculate the expected return and volatility of a portfolio of Johnson & Johnson andWalgreen using a wide range of portfolio weights. Plot the expected return as a functionof the portfolio volatility. Using your graph, identify the range of portfolio weights thatyield efficient combinations of the two stocks rounded to the nearest percentage point.

Since there are several questions we will solve the first one. Please repost the others separately.…

4) Johnson & Johnson and Walgreen Company have a correlation of 16% and expecte returns and standard deviations as shown below. E(r) σ Johnson & Johnson 8% 17% Walgreen Company 11% 21% a) Calculate the expected return and volatility of a portfolio that is equally invested in the two stocks that consists of a long position of $12,000 in Johnson & Johnson and a sho position

4) Johnson & Johnson and Walgreen Company have a correlation of 16% and expecte returns and standard deviations as shown below. E(r) σ Johnson & Johnson 8% 17% Walgreen Company 11% 21% a) Calculate the expected return and volatility of a portfolio that is equally invested in the two stocks that consists of a long position of $12,000 in Johnson & Johnson and a sho position

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose Wesley Publishing's stock has a volatility of 70%, while Addison Printing's stock has a volatility of 20%. If the correlation between these stocks is 25%, what is the volatility of the following portfolios of Addison and Wesley: a. 100% Addison b. 75% Addison and 25% Wesley c. 50% Addison and 50% Wesley a. The volatility of a portfolio of 100% Addison stock is %. (Round to two decimal places.) b. The volatility of a portfolio of 75% Addison and 25% Wesley is %. (Round to two decimal places.) c. The volatility of a portfolio of 50% Addison and 50% Wesley is %. (Round to two decimal places.)
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Am. 340.
Suppose Target's stock has an expected return of 25% and a volatility of 42%, Hershey's stock has an expected return of 12% and a volatility of 27%, and these two stocks are uncorrelated. a. What is the expected return and volatility of an equally weighted portfolio of the two stocks? Consider a new stock with an expected return of 18.5% and a volatility of 28%. Suppose this new stock is uncorrelated with Target's and Hershey's stock. b. Is holding this stock alone attractive compared to holding the portfolio in (a)? c. Can you improve upon your portfolio in (a) by adding this new stock to your portfolio? Explain. a. What is the expected return and volatility of an equally weighted portfolio of the two stocks? The expected return is %. (Round to two decimal place.) The volatility is %. (Round to two decimal place.) Consider a new stock with an expected return of 18.5% and a volatility of 28%. Suppose this new stock is uncorrelated with Target's and Hershey's stock. b. Is holding this…
Suppose Wesley Publishing's stock has a volatility of 45%, while Addison Printing's stock has a volatility of 20%. If the correlation between these stocks is 75%, what is the volatility of the following portfolios of Addison and Wesley: a. 100% Addison b. 75% Addison and 25% Wesley c. 50% Addison and 50% Wesley
Use the following information to calculate the expected return and standard deviation of a portfolio that is 60 percent invested in 3 Doors, Incorporated, and 40 percent invested in Down Company: Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Expected return, E(R) Standard deviation, o Correlation Expected return Standard deviation 3 Doors, Incorporated 16% 46 0.31 2.00% 2.00% Down Company 24% 48
The expected return and standard deviation of a portfolio that is 50 percent invested in 3 Doors, Incorporated, and 50 percent invested in Down Company. are the following: Expected return, E(R) Standard deviation, o 3 Doors, Incorporated 14% 42 Correlation +1 Correlation 0 Correlation-1 What is the standard deviation if the correlation is +1? 0? -1? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Standard Deviation 33.61 % Down Company 10% 31 %
The following are estimates for two stocks. Firm- Specific Expected Standard Stock Return Beta Deviation A 14% 0.90 30% B 21 1.40 42 The market index has a standard deviation of 20% and the risk-free rate is 7%. Required: a. What are the standard deviations of stocks A and B? b. Suppose that we were to construct a portfolio with proportions: Stock A Stock B T-bills 0.30 0.45 0.25 Compute the expected return, beta, nonsystematic standard deviation, and standard deviation of the portfolio.
Using the data in the following table, and the fact that the correlation of A and B is 0.48, calculate the volatility (standard deviation) of a portfolio that is 70% invested in stock A and 30% invested in stock B. (Click on the following icon in order to copy its contents into a spreadsheet.) Year 2008 2009 2010 2011 2012 2013 Realized Returns Stock A - 10% 20% 5% - 5% 2% 9% Stock B 21% 30% 7% - 3% - 8% 25% The standard deviation of the portfolio is %. (Round to two decimal places.)
The expected return and standard deviation of a portfolio that is 60 percent invested in 3 Doors, Incorporated, and 40 percent invested in Down Company are the following: Expected return, E(R) Standard deviation, o 3 Doors, Down Incorporated Company 10% 33 Correlation +1 Correlation 0 Correlation-1 What is the standard deviation if the correlation is +1? 0? -1? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. 11% 44 Standard Deviation % % %
A portfolio has 45% of its value in IBM shares and the rest in Microsoft (MSFT). The valability of IBM and MSFT are 40% and 30%, respectively, and the correlation between 1BM and MSFT is -0.1. What is the standard deviation of the portfolia? OA 25.56% OB. 22.08% OC. 23.24% OD. 20.91%
Q4: Assume the following information for stocks A and B. • Expected return on Stock A = 18%. • Expected return on Stock B = 23%. • Correlation between returns of Stock A and Stock B = 0.10. • Standard deviation of returns on Stock A = 40%. • Standard deviation of returns on Stock B = 50%. Compute The expected return Standard deviation

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